1. What IFRS 18 is about
IFRS 18 establishes overall requirements for the presentation and disclosure of financial statements and replaces IAS 1. Its main focus is improving how financial performance is communicated, especially in the statement of profit or loss.
income & expenses
subtotals
MPMs
information
information
Think of IFRS 18 as a presentation and communication standard. It normally does not change whether an item is recognised or how the underlying transaction is measured under the relevant IFRS.
2. 2027 IAC scope
The SAICA 2027 Principles of Examination identifies IFRS 18 as a Level 3 pervasive presentation/disclosure standard, to the extent that it supports presentation and disclosures relating to transactions, IFRS Standards and topics included in the syllabus.
| What you should be able to do | Practical implication |
|---|---|
| Classify income and expenses | Determine operating, investing or financing classification, including specified main business activities. |
| Prepare / analyse profit or loss | Apply the required categories and defined subtotals. |
| Deal with MPMs | Identify an MPM and prepare the required reconciliation and disclosures. |
| Apply aggregation and disaggregation | Decide what information belongs in the primary statements versus the notes. |
| Integrate with other IFRS | Use IFRS 18 alongside the recognition and measurement standard for the underlying item. |
3. The statement of profit or loss – the core exam area
IFRS 18 introduces defined categories and required subtotals. The exact line items depend on the entity and the nature of its activities.
Two defined subtotals to know
The total of all income and expenses classified in the operating category.
Operating profit or loss plus all income and expenses classified in the investing category.
4. The five-category logic
| Category | Core idea | Exam question |
|---|---|---|
| Operating | Residual category: income and expenses not classified in another category, capturing the entity's main business activities. | “Is this item not investing, financing, tax or discontinued operations?” |
| Investing | Income and expenses from investments in assets that generate returns individually and largely independently of other resources, subject to specified-main-business-activity rules. | “Is this a return from an investment in an asset?” |
| Financing | Income and expenses arising from specified financing activities / liabilities and the financing effect of certain transactions. | “Does this arise from financing the entity?” |
| Income taxes | Income tax income and expense accounted for under IAS 12. | “Is this an income-tax amount?” |
| Discontinued operations | Amounts presented separately when the IFRS requirements for discontinued operations are met. | “Does IFRS 5 require separate presentation?” |
Specified main business activities
An entity may have a main business activity of investing in assets or providing financing to customers. If so, IFRS 18 can require income and expenses that would otherwise be classified as investing or financing to be classified in operating instead.
5. Management-defined performance measures (MPMs)
MPMs are one of the most examinable new concepts. They address subtotals used by management in public communications to communicate management's view of an aspect of the entity's financial performance as a whole.
Definition – the 3-part test
- Subtotal of income and expenses.
- The entity uses it in public communications outside the financial statements.
- It communicates management's view of an aspect of the financial performance of the entity as a whole, and it is not already excluded from the MPM definition or specifically required by IFRS Accounting Standards.
Subtotals that are not MPMs
Important exclusions include certain specified subtotals such as gross profit (or similar subtotals), operating profit before specified depreciation/amortisation/impairments, profit before tax, and profit from continuing operations.
Required MPM disclosures
| Disclosure | What to remember |
|---|---|
| Label and description | Describe the measure clearly and explain the meaning of terms used. |
| How calculated | Explain how the MPM is calculated. |
| Reconciliation | Reconcile the MPM to the most directly comparable subtotal or total specified by IFRS Accounting Standards. |
| Tax effects | Disclose the income-tax effect for reconciling items as required. |
| NCI effects | Disclose the effect attributable to non-controlling interests for reconciling items as required. |
| Changes | Explain changes in the MPM, including changes in how it is calculated where applicable. |
6. Presentation of operating expenses
Operating expenses are presented in the statement of profit or loss classified and aggregated using either their nature, their function, or—when required—the appropriate mixed approach.
By nature
Expenses are grouped according to what they are, for example employee benefits, depreciation, amortisation, raw materials or advertising.
By function
Expenses are grouped according to the function they serve, such as cost of sales, distribution and administrative activities.
Exam trap
“By function” does not mean you can ignore nature. IFRS 18 adds note disclosure requirements so users can obtain important information about specified expenses by nature.
7. Aggregation, disaggregation and communication
IFRS 18 strengthens the principles for grouping information so that financial statements provide useful structured summaries without obscuring material information.
Combine items with shared characteristics when doing so produces useful information.
Separate items when differences in characteristics are important to understanding them.
Material information should not be obscured by immaterial information or inappropriate aggregation.
Primary financial statements vs notes
- Primary financial statements provide structured summaries useful for obtaining an understandable overview and making comparisons.
- Notes provide additional material information needed to understand the primary statements.
- Use clear labels and descriptions.
- Avoid excessive aggregation that hides material information.
- Avoid unnecessary disaggregation that creates clutter without useful information.
8. Other presentation requirements to integrate
| Area | Study focus |
|---|---|
| Complete set of financial statements | Statement of financial position; statement(s) of financial performance; statement of changes in equity; statement of cash flows; notes, including comparative information where required. |
| Comparatives | Understand the comparative information requirements and how presentation/disclosure changes interact with prior periods. |
| Material information | Apply materiality to presentation and disclosure—not merely recognition and measurement. |
| Line items and subtotals | Additional subtotals must be relevant, faithfully represented, consistently presented and labelled appropriately under IFRS 18. |
| IAS 1 replacement | Know that IFRS 18 replaces IAS 1, while some IAS 1 requirements were retained or moved to other Standards such as IAS 8 and IFRS 7. |
9. IAC exam approach
Step 1 – Identify the underlying transaction
Start with the relevant standard: revenue, PPE, leases, financial instruments, provisions, employee benefits, etc.
Step 2 – Identify the income / expense
Determine exactly what income or expense is being presented and which standard governs its recognition and measurement.
Step 3 – Classify it under IFRS 18
Step 4 – Check specified main business activity
If the entity invests in assets or provides financing to customers as a main business activity, reassess classification where IFRS 18 requires it.
Step 5 – Build the statement of profit or loss
Present the required categories and subtotals, then assess whether additional line items or subtotals are needed.
Step 6 – Test for MPMs
Look for management performance subtotals appearing in public communications outside the financial statements.
Step 7 – Check notes
Apply the expense-by-nature, MPM, aggregation/disaggregation and other disclosure requirements.
10. Common exam traps
| Trap | Correct thinking |
|---|---|
| “Interest always = financing.” | Consider the IFRS 18 classification rules and whether the entity has a specified main business activity. |
| “All investment income = investing.” | Check whether investing in the relevant assets is a specified main business activity. |
| “Operating profit is just whatever management calls operating profit.” | IFRS 18 defines the operating category and operating profit or loss. |
| “Adjusted EBITDA is automatically an MPM.” | Apply the definition and the exclusions; the label is not decisive. |
| “MPMs are just voluntary KPI disclosures.” | If the definition is met, IFRS 18 imposes specific disclosure requirements. |
| “Function expenses mean nature is irrelevant.” | Function presentation can trigger specified expense-by-nature disclosures. |
| “IFRS 18 changes the accounting for the transaction.” | Usually the underlying recognition and measurement remains governed by the relevant IFRS; IFRS 18 governs presentation/disclosure. |
| “More aggregation is always better.” | Aggregation must not obscure material information. |
11. Study checklist
0 / 18 completed
12. One-page brain dump
IFRS 18 = presentation + disclosure.
Effective: 1 Jan 2027.
Replaces: IAS 1.
Core P/L categories: operating, investing, financing, income taxes, discontinued operations.
Defined subtotals: operating profit or loss; profit or loss before financing and income taxes.
Operating: residual category.
Investing: returns from investments in assets, subject to specified-main-business-activity rules.
Financing: financing-related income and expenses, subject to the Standard's classification requirements.
Main-business exception: investing in assets / providing financing to customers can cause related income and expenses to be operating.
MPM: subtotal + public communication + management's view of an aspect of entity-wide financial performance + not excluded / otherwise required.
MPM disclosure: label, description, calculation, reconciliation, tax/NCI effects, changes and other required information.
Expenses: nature or function, with additional specified nature disclosures when required.
Aggregation: don't hide material information.
Integration: underlying IFRS determines recognition/measurement; IFRS 18 determines presentation/disclosure.