In April 2024, the International Accounting Standards Board (IASB) introduced a landmark update: IFRS 18 – Presentation and Disclosure in Financial Statements. More than just a revision of IAS 1, IFRS 18 is a strategic enhancement designed to bring clarity, comparability, and transparency to financial reporting.

For financial analysts, this is welcome news.

📊 Why Analysts Needed a New Friend

Analysts often face the challenge of interpreting income statements that vary widely in format and presentation. From missing subtotals like Operating Profit to inconsistent use of management-defined metrics, comparability across companies has long been an issue.

Enter IFRS 18, a standard crafted to address these exact concerns.

🔍 Key Improvements That Make IFRS 18 Analyst-Friendly

1. Standardized Profit or Loss Categories

The statement of profit or loss is now classified into three clearly defined sections:

• Operating
• Investing
• Financing

This provides a more logical and consistent structure, enabling better benchmarking across entities.

2. Mandatory Subtotals

IFRS 18 requires entities to present key subtotals such as:

• Operating Profit
• Profit before Financing and Income Tax
• Profit before Tax
• Profit for the Period

This aligns closely with the performance indicators analysts already track and model.

3. Management Performance Measures (MPMs)

For the first time, entities must disclose and reconcile any management-defined performance measures (e.g., Adjusted EBITDA) to the closest IFRS-defined subtotal. This means:

• Greater transparency into adjustments
• Standardized explanations in the notes
• Enhanced confidence in the reported figures

4. Enhanced Expense Disaggregation

Even when using the “function of expense” method, IFRS 18 requires disclosure of certain expenses by nature—such as employee benefits, depreciation, and impairments—offering a clearer view of cost drivers.

💡 Why It Matters

Whether working in FP&A, equity research, credit analysis, or investment banking, financial analysts now have access to:

• Cleaner data
• Fewer manual adjustments
• Improved consistency across peer groups
• Better insight into a company’s operating performance

IFRS 18 ultimately makes the income statement more usable and trustworthy for analysis.

🗓️ Effective Date

IFRS 18 is effective for annual periods beginning on or after 1 January 2027. Early adoption is permitted, and entities are encouraged to start preparing for the transition.

📌 Final Thoughts

IFRS 18 is more than a compliance requirement—it's a tool designed to bring users of financial statements closer to the true story behind the numbers. For analysts, this standard is not just a change in format—it’s a new and reliable friend in financial reporting.

What are your thoughts on IFRS 18? Will it change how you analyze financials?

Let’s discuss in the comments.

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Tags: #IFRS18 #FinancialReporting #FinancialAnalysis #AccountingStandards #FPandA #IFRS #Valuation #Finance