IFRS 18: other key amendments to financial reporting
Amendments to the Statement of Financial Position under IFRS 18
The majority of requirements in International Accounting Standard (IAS) 1 have been carried over into International Financial Reporting Standards (IFRS) 18. However, there have been some minor amendments, such as the line items that are required to be presented on the Statement of Financial Position (SOFP). Goodwill is now required to be presented on the face of the SOFP, rather than included as part of intangible assets in the notes to the financial statements. In addition, management will need to assess whether their current presentation of assets and liabilities provides useful structured summaries, and whether the principles of aggregation and disaggregation of information are met.
Statement of Cash Flows – new rules for interest and dividends
While there have been some amendments to IAS 7, it’s worth noting that the new income statement categories introduced by IFRS 18 do not correspond to the cash flow statement categories in IAS 7.
The first change to the Statement of Cash Flows is that the starting point for the indirect method of reporting cash flows is now operating profit (an IFRS 18 defined subtotal). This consistent starting point for the Statement of Cash Flows will eliminate some reconciling items and enhance comparability.
The second change concerns the classification of cash flows from interest and dividends in the Statement of Cash Flows by removing the accounting policy choice on classification. For all entities, dividends paid must be classified in financing cash flows. For entities that do not invest in particular types of assets or providing finance to customers as their main business activity, interest paid is classified as a financing cash flow, with interest and dividends received classified as an investing cash flow.
For entities that invest in particular types of assets or providing financing to customers as their main business activity, the classification of interest and dividends received, and interest paid will be determined by reference to how they are classified in the Income Statement in accordance with IFRS 18.
Interim reporting requirements under IFRS 18
For entities that publish interim financial reports, those interim financial statements must use the headings that they expect to use in their IFRS 18 financial statements, include the subtotals as required under IFRS 18, and MPM disclosures. The entity should also provide a reconciliation between the amounts restated through applying accounting policies in line with IFRS 18 and those amounts previously presented when applying their accounting policies in line with IAS 1.
Preparing for the changes
As your business gets ready to adopt IFRS 18, early preparation is key to ensuring your financial statements meet the new standard. To facilitate a smooth transition, consider the following steps:
- Ensure interim reports reflect the revised requirements.
- Adjust the presentation of assets and liabilities and cash flows to align with the new IFRS 18 requirements and IAS 7 amendments.
- Update all relevant notes and disclosures accordingly.
Planning for IFRS 18 implementation
IFRS 18 introduces important adjustments to how assets, liabilities and cash flows are presented, including revised requirements for interest, dividends and interim reporting. Our accounting and financial reporting experts can help you assess the impact on your current statements, update systems and disclosures, and ensure your organisation is fully prepared for adoption. Contact Tiaan Fourie, Lou Ward or your usual RSM adviser to discuss how we can support your transition to IFRS 18.