IFRS 18 updates to financial reporting

IFRS 18 sets out new requirements designed to improve the structure and content of financial statements and introduces new disclosures. The standard also clarifies the objective of financial statements: to faithfully represent the assets, liabilities, equity, income and expenses of an entity.

The standard introduces explicitly defined roles for primary financial statements and the accompanying notes. Primary financial statements are structured summaries of an entity’s financial information that:

• Provide a clear overview of the entity’s recognised assets, liabilities, equity, income, expenses and cash flows.
• Enable comparisons between entities and between reporting periods for the same entity.
• Help readers identify items or areas where they would like more information from the notes.

The notes supplement the primary financial statements with material information on items.

The standard includes principles of aggregation and disaggregation for information on assets, liabilities, equity, income, expenses and cash flows to ensure that financial statements provide enough information to evaluate an entity’s ability to generate future net cash inflows and assess management oversight and use of economic resources.

Where do you need to provide information in financial statements?

Some information must be presented in the primary financial statements or notes to align with other IFRS standards (for example disaggregation of revenue from contracts with customers). Unless there are explicit aggregation or disaggregation requirements in another IFRS standard, the principles of IFRS 18 should be followed to determine where information is presented, taking into account:

• Shared characteristics: Items are aggregated based on similarities and disaggregated where differences exist.
• Role clarity: Grouping should align with the distinct roles of primary financial statements and notes.
• Transparency: Aggregation and disaggregation should not hide material information that could influence investor decisions.

If the information is material, items should be disaggregated to make that clear. If material information is not included in the primary statements, it should be disclosed in the accompanying notes.

To help apply the principles, IFRS 18 provides application guidance on grouping items and labelling aggregated items, including which characteristics to consider when assessing whether items have similar or dissimilar characteristics:

What do you need to do to prepare for IFRS 18?

To prepare for implementation, it is best to begin planning early. Key steps include:

• Developing a clear project plan and keeping all stakeholders informed throughout the process.
• Ensuring your finance team understands the updated aggregation and disaggregation principles.
• Deciding on clear and informative labels for aggregated and disaggregated information in your financial statements.

Planning now will help ensure a smooth transition to the new reporting standard.

Expert insights on IFRS 18 compliance

Adapting to IFRS 18 will require more than simply updating your financial statements. You’ll have to rethink presentation, disclosure and the way information is communicated to stakeholders. Our financial reporting specialists can guide you through the changes, helping you assess the impact, plan your implementation and stay compliant.

Reach out to Tiaan Fourie, Lou Ward or your usual RSM contact to find out how we can support your organisation in preparing for IFRS 18.

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