The International Accounting Standards Board (IASB) has completed work to improve the usefulness of information presented and disclosed in financial statements. IFRS 18 is due to be issued in April 2024 and applies to annual reporting periods beginning on or after 1 January 2027. IFRS 18 includes requirements for all entities that apply IFRS to present and disclose information in their financial statements.

To provide a useful structured summary in the primary financial statements, specific requirements in IFRS 18 that define the structure of the statements must be followed. Although some IFRS Accounting Standards require certain line items to be presented separately in the basic financial statements, an entity need not do so if this is not necessary for the statements to provide a useful structured summary, even if those standards list certain line items as specific or minimum requirements. Additional line items and subtotals need to be presented if such presentation is necessary for the basic financial statements to provide a useful structured summary. However, such additional line items or subtotals need to meet specific conditions as listed in the standard.

Some advantages of adopting IFRS Accounting Standard 18 – it will provide investors with more transparent and comparable information about the financial performance of the company, thereby facilitating better investment decisions. The details are as follows:

First, improving comparability in profit or loss statements (income statements):

• There is currently no specific structure for income statements. Companies choose their own subtotals to include. Companies typically report operating profit, but the way operating profit is calculated varies from company to company, reducing comparability.
• IFRS 18 introduces three categories of income and expense – operating, investing and financing – to improve the structure of the income statement and requires all companies to provide new subtotals, including operating profit. The improved structure and new subtotals will give investors a consistent starting point for analysing companies’ performance and make it easier to compare companies.

Second, enhance the transparency of management-determined implementation measures:

• Many companies provide company-specific measures, often referred to as alternative performance measures. Investors find this information useful. However, most companies do not provide enough information to help investors understand how these measures are calculated and how they relate to the measures required in the income statement.

As a result, IFRS 18 requires companies to disclose specific company measures that are relevant to the financial statements, known as management-determined performance measures. The new requirements will improve the discipline and transparency of management-determined performance measures and make them auditable.

Third, more useful information groups in financial statements:

• Investors’ analysis of a company’s performance will be hampered if the information provided by the company is too summary or too detailed. IFRS 18 provides enhanced guidance on how to structure that information and whether to provide it in the basic financial statements or in the notes. These changes are expected to provide more detailed and useful information. IFRS 18 also requires companies to provide greater transparency about operating costs, helping investors find and understand the information they need.

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier. The changes to a company’s reporting that IFRS 18 will create will depend on their current reporting practices and IT systems.

Source: https://ifrs.org.vn/

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