IFRS 18 becomes effective 1 January 2027 and is expected to have a material impact on how entities present their Statement of Financial Performance in the financial statements.
The Statement of Financial Performance is presented either as a single statement of profit or loss and other comprehensive income, or as two separate statements — a statement of profit or loss and a statement of other comprehensive income (the latter immediately preceding the former).
IFRS 18 introduces a new requirement for entities to reorganise and present income and expenses (I&E) in profit or loss into five categories. I&E include gains and losses arising from related transactions and events.
I&E are classified under the operating category of the statement unless they fall within another category. As a general rule, investing and financing activities that relate to an entity’s main business activities are included in operating profit. An exception applies to investments accounted for using the equity method, which are always classified in the investing category.
Interest expenses are generally recognised in the financing category. However, exceptions arise where interest does not directly result from the time value of money, for example, where the interest relates to a penalty. Other I&E are included in the financing category where the underlying instrument represents purely the provision of finance, such as borrowings and preference shares. There is no change to the presentation of income tax or discontinued operations.
Categories of I&E in the statement of profit or loss
Operating
- I&E where main business activities are:
- Investing in assets
- Providing finance
- All other I&E not included elsewhere
Investing
- Investments in associates, JVs and unconsolidated subsidiaries
- Cash and cash equivalents
- Other assets – generate a return individually and largely independently from other resources
Financing
- Liabilities resulting in raising finance only (e.g. borrowings, preference shares)
- Interest from other liabilities that does not only relate to borrowings
Income Tax
- Income tax expense or income per IAS 12 (excluding taxes on discontinued operation)
Discontinued Operations
- I&E from discontinued operations – IFRS 5
Common IFRS 18 Presentation Misconceptions
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What NOT to do |
Why this is incorrect |
What IFRS 18 requires |
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Applying IAS 7 |
Under IAS 7, categories |
IFRS 18 classifications are |
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meanings to |
are cash flow–based and |
independent from IAS 7 and |
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operating, investing |
defined differently. |
focus on where income and |
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and financing |
Applying those same |
expenses contribute to |
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categories |
interpretations to IFRS 18 |
performance. Gains and |
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will lead to incorrect |
losses on fixed assets are |
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classification of I&E. |
generally included in |
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operating profits, unless |
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specifically required |
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otherwise. |
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Presenting |
Illustrative examples in |
IFRS 18 does not require |
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“Operating”, |
practice (especially |
section headers. Instead, |
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“Investing” and |
informal sources) often |
entities present categories |
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“Financing” as |
show section headings, |
through required subtotals |
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explicit headers in |
creating the impression of |
(see example below) |
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profit or loss |
a prescribed format. This |
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is not supported by the |
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Standard. |
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Example: Extract from Statement of Profit and Loss
