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Clarity Mag

Changes to financial performance reporting to bring investors more consistency

On 9 April 2024 the International Accounting Standards Board (IASB) issued its new standard IFRS 18 Presentation and Disclosure in Financial Statements.

IFRS 18 (AASB 18, when adopted in Australia) will replace IAS 1 (AASB 101) Presentation of Financial Statements.

This standard is effective for most for-profit entities for financial years commencing on or after 1 January 2027 (early adoption permitted), however the AASB has introduced a revised effective date for:

  • NFP private and public sector entities, and
  • superannuation entities complying with AASB 1056...

...of financial years beginning on or after 1 January 2028. Early adoption is permitted.

The IASB believe that IFRS 18, will give investors more transparent and comparable information about companies’ financial performance, thereby enabling better investment decisions.

IFRS 18 sets out that:

The objective of financial statements is to provide financial information about a reporting entity’s assets, liabilities, equity, income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to the entity and in assessing management’s stewardship of the entity’s economic resources.

IFRS 18 introduces three sets of new requirements which the IASB believe will improve companies’ reporting of financial performance and give investors a better basis for analysing and comparing companies.

These new requirements being:

  • A more structured income statement
  • A requirement to disclose and report management-defined performance measures ‘MPMs’, and
  • Greater disaggregation of information.

A more structured income statement

The IASB is of the opinion that IAS 1 does not provide a specified structure for the income statement, permitting companies to choose their own subtotals to include in the income statement. The IASB note that although companies often report an operating profit, the way entities calculate operating profit varies from company to company, and therefore reduces comparability.

To provide a more structured income statement and provide the user with greater comparability IFRS 18 introduces three defined categories for income and expenses:

  • Operating
  • Investing, and
  • Financing.

IFRS 18 requires all companies to provide new defined subtotals:

  • Operating profit or loss
  • Profit or loss before financing and income taxes, and
  • Profit or loss.

Management-defined performance measures

Historically, many entities have used alternative performance measures. Commonly referred to as ‘non-GAAP’ information to explain their financial performance because it allows them to tell their own story and is considered to provide investors with useful insight into a company’s performance, which is missing from the constraints put in place by applying IFRS.

To make the financial report more useful and comparable, IFRS 18 introduces the concept of Management-defined performance measures (MPMs).

A management-defined performance measure is a subtotal of income and expenses that:

  • An entity uses in public communications outside financial statements
  • An entity uses to communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole, and
  • Is not specifically required to be presented or disclosed by IFRS Accounting Standards.

IFRS 18 requires companies to disclose explanations as to an entity’s management-defined performance measures. The new requirements will improve the discipline and transparency of management-defined performance measures and make them subject to audit.

Greater disaggregation of information

The IASB is of the opinion that investor analysis of companies’ performance is hampered if the information provided by companies is too summarised or
too detailed. IFRS 18 therefore sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements or in the notes. The changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide more transparency about operating expenses.

Companies are discouraged from labelling items as ‘other’ and will now be required to disclose more information if they continue to do so.


Please contact your local PKF advisor if you require any further information or insights on the upcoming changes.


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