IFRS 18: How companies will communicate their financial performance in future

The presentation of information in companies' financial statements is inconsistent under the current IFRS regulations. This presents investors with the challenge of comparing the financial performance of companies.

The way in which companies communicate their financial performance will therefore change. The International Accounting Standards Board (IASB) published a new IFRS accounting standard - IFRS 18 Presentation and Disclosure in Financial Statements - in April 2024.

IFRS 18 will have an impact on companies in all sectors that prepare their financial statements in accordance with IFRS accounting standards. The way in which companies communicate their financial performance will change.

IFRS 18 is mandatory for financial years beginning on or after 1 January 2027 and must be applied retrospectively. Earlier application is permitted. In the financial year of initial application, the previous year's comparative figures must be adjusted.

Introduction of three newly defined categories (operating, investing, financing) in the income statement
Elimination of numerous disclosure options in the income statement due to mandatory requirements for the allocation of income and expenses to the categories
Allocation rules vary depending on the main business activities
Introduction of two new mandatory subtotals in the income statement
Possibility to present the expenses of the operating category in a combination of cost types and functional costs
Requirements for disclosures on company-specific performance indicators
Elimination of the disclosure options for cash flows from dividends and interest in the cash flow statement in accordance with IAS 7
Change in the starting point, defined as "operating profit or loss", for determining the cash flow from operating activities using the indirect method in the cash flow statement

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This is changing in the communication of financial performance

KPMG has published two publications to help you understand IFRS 18 and implement the new requirements.

For those who want to get an initial overview, the Talkbook "IFRS 18: Presentation and Disclosures in Financial Statements" provides a concise summary of the most important aspects of IFRS 18 in German. You will get an overview of what will change, the benefits of the new accounting standard and what companies should do now.
"First Impressions" is a detailed English guide that provides an in-depth look at the new standard. The publication clarifies initial questions and the new regulations are illustrated with numerous graphics and clear examples. It is designed to help you assess the impact on your financial statements and manage the necessary changes to your systems and processes.

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IFRS 18 Accounting Standards

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What are the advantages?

Financial statements that contain more relevant, comparable and transparent information will provide users with better information about the financial performance of companies.
The removal of disclosure options will increase the comparability of companies' financial performance. This applies in particular to the income statement, but also to the cash flow statement.
Additional company-specific information in the financial statements enables companies to better present their history. Clear rules ensure that entity-specific information is distinguished from non-entity-specific information and reconciled to it, thereby improving the understanding of users of the financial statements.

The IFRS 18 standard does not apply until 1 January 2027, but we recommend dealing with it now, as it will be applied retrospectively and may have an impact on the process landscape.

Patrick Krätschmer

Partner, Audit - DPP, Capital Markets Assurance

KPMG AG Wirtschaftsprüfungsgesellschaft

What are the next steps?

Read our Talkbook and First Impressions to understand the new accounting standard and assess the impact on your organisation.
Consider how the new requirements will impact financial reporting systems and processes.
Communicate the impact to your investors.
Monitor any changes in financial reporting.

IFRS 18 improves the transparency and comparability of financial statements in the financial services sector through special regulations for companies such as banks and insurance companies. These relate to the presentation of financial information in financial statements, such as the recognition of income and expenses in the income statement.