Transforming financial reporting with IFRS 18 and IFRS 19

IFRS 18 — Presentation and Disclosure in Financial Statements

IFRS 18 applies to all financial statements reporting under IFRS, including standalone, separate and consolidated financial statements within a group. The new standard aims to enhance comparability of financial performance across entities, particularly in defining ‘operating profit or loss’, and to improve transparency through new disclosure requirements for certain management performance measures (MPMs).

Key changes introduced by IFRS 18:

Structured statement of profit or loss:

• Introduces five categories of income and expenses: operating, investing, financing, income taxes and discontinued operations.
• Categories are determined by the entity’s main business activity, which may differ within a group.
• Mandates new subtotals, including ‘operating profit or loss’, ‘profit or loss’ and ‘profit or loss before financing and income taxes’ (with some exceptions).

Enhanced aggregation and disaggregation guidance:

• Provides principles for grouping items based on shared characteristics.
• Applies to all primary financial statements and notes.
• Defines presentation of line items and information disclosed in notes.

Management-defined performance measures (MPMs):

• Requires disclosure of MPMs in a single note.
• Includes reconciliation between MPMs and the most similar IFRS-specified subtotal.
• Brings certain non-GAAP measures into the financial statements.

Expense disclosure:

• Entities must present operating expenses by nature, function or a mix of both.
• When presented by function, specific expenses must be disclosed by nature.

Other changes:

• Amends IAS 7 Statement of Cash Flows to specify ‘operating profit or loss’ as the starting point for reconciling cash flows from operating activities.
• Removes options for presenting interest and dividends paid and received.

Effective date: annual reporting periods beginning on or after 1 January 2027, including interim financial statements. Retrospective application required, with specific reconciliation requirements in the year of adoption between the old IAS 1 format and the new IFRS 18 format.

IFRS 19 — Subsidiaries without Public Accountability: Disclosures

IFRS 19 is a voluntary standard designed to simplify financial reporting for eligible subsidiaries. It allows these entities to maintain IFRS compliance while reducing their disclosure burden.

Key features

• Scope: applies to consolidated, separate or individual financial statements of eligible subsidiaries.
• Compliance: requires adherence to recognition, measurement and presentation requirements of other IFRS standards.
• Benefit: permits reduced disclosure requirements compared to full IFRS standards.

Eligibility criteria

To apply IFRS 19, a subsidiary must meet two conditions:

1. No public accountability; and
2. Ultimate or intermediate parent prepares IFRS-compliant consolidated financial statements available for public use.

Defining public accountability

An entity has public accountability if:

• Its equity or debt instruments are traded in a public market;
• It’s in the process of issuing such instruments for public trading; or
• It holds assets in a fiduciary capacity for a broad group of outsiders as a primary business.

Effective date and application

IFRS 19 is set to take effect for reporting periods commencing on or after 1 January 2027. Entities adopting the standard will typically need to provide comparative information prepared under IFRS 19, ensuring consistency across reporting periods. For those eager to implement the changes, early application is an option though it comes with specific requirements if adopted before IFRS 18.

It’s important to note that the ability to apply IFRS 19 may be subject to local regulatory approval, as some jurisdictions may require an endorsement process before the standard can be implemented. This phased approach allows entities time to prepare for the changes while providing flexibility for early adopters, all within the framework of local regulatory requirements.

By clarifying the scope, eligibility and application of IFRS 19, subsidiaries can better assess whether this standard offers valuable simplification for their financial reporting processes.