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New IFRS standard aims to improve corporate reporting

April 9, 2024

IFRS 18, Presentation and Disclosure in Financial Statements, is effective for annual reporting periods beginning on or after 1 January 2027.

Following work from the IASB to improve the usefulness of information disclosed in financial statements, the IFRS Foundation released a new standard to improve companies' reporting of financial performance and assist investment decision-making, a news release said.

The new standard, IFRS 18, Presentation and Disclosure in Financial Statements, is designed to give investors more transparent and comparable information about companies' financial performance, thereby enabling better investment decisions.

The standard is effective for annual reporting periods beginning on or after 1 January 2027, but companies can apply it earlier.

According to the release, IFRS 18 introduces three sets of new requirements to improve companies' reporting and give investors a better basis for analysing and comparing companies:

Improved comparability in the statement of profit or loss (income statement): Currently there is no specified structure for the income statement, the release said. "IFRS 18 introduces three defined categories for income and expenses — operating, investing, and financing — to improve the structure of the income statement, and requires all companies to provide new defined subtotals, including operating profit."

Enhanced transparency of management-defined performance measures: Many companies don't currently provide enough information to enable investors to understand how company-specific measures are calculated and how they relate to the required measures in the income statement, the release said.

The new standard requires companies to disclose explanations of those "company-specific measures that are related to the income statement, referred to as management-defined performance measures", the release said, to improve the discipline and transparency of management-defined performance measures, and make them subject to audit.

More useful grouping of information in the financial statements: Investor analysis of companies' performance is hampered if the information provided by companies is too summarised or too detailed, the release said. IFRS 18 sets out enhanced guidance on how to organise information and whether to provide it in the primary financial statements or in the notes.

These changes aim to provide more detailed and useful information, the release said. IFRS 18 also requires companies to provide more transparency about operating expenses, helping investors to find and understand the information they need.

[Financial Management Magazine]

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