A few months ago, in April 2024, the International Accounting Standards Board (IASB) published the new accounting standards "IFRS 18 Presentation and Disclosure in Financial Statements". IFRS 18 will replace the previous IAS 1 and aims to make the presentation of financial statements more transparent and comparable.
IFRS are internationally recognized accounting standards. All capital market-oriented companies are obliged to apply IFRS. They must prepare their consolidated financial statements in accordance with IFRS rules. In addition, non-capital-market-oriented parent companies also have the option of preparing their accounts in accordance with IFRS on a voluntary basis.
Introduction of IFRS 18
The IASB hopes that the new standards - IFRS 18 - will provide investors with more transparent and comparable information about a company's financial performance. According to IASB Chairman Andreas Barckow, IFRS 18 represents the most significant change in the presentation of a company's financial performance since the introduction of IFRS standards over 20 years ago. IFRS 18 applies to all companies that prepare their accounts in accordance with IFRS standards. What is to be improved with IFRS 18 and what are the main changes brought about by the new standards?
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Sense and purpose of the new standards
The primary objective of IFRS 18 is to enable stakeholders to better assess a company's performance in future. This is to be achieved through the transparent presentation of information on a company's financial performance. To date, IFRS has not provided any specific requirements regarding the structure and subtotals in the income statement. The lack of transparency in the use of company-specific key figures has also been criticized to date. IFRS 18 is intended to enable investors to make better decisions and thus also contribute to improving the resilience of the capital markets.
What are the main changes introduced by IFRS 18?
IFRS 18 contains fundamental requirements for the presentation of the annual financial statements and the required disclosures in the notes to the financial statements. The following changes are the main changes introduced by IFRS 18:
- In future, there will be three new categories in the income statement: operating, investing and financing. Based on this, two new mandatory subtotals will be introduced in the income statement: the operating result (operating profit or loss) and the result (profit or loss) before financing and income taxes.
- In future, the notes are to be expanded to include information on key performance indicators defined and communicated by management.
- In future, clearer requirements for the aggregation and disaggregation of accounting items must be taken into account both in the primary financial statements and in the notes.
It should also be noted that IFRS 18 affects all financial statements prepared in accordance with IFRS requirements. The previous IAS 1 - Presentation of Financial Statements - will be replaced by IFRS 18.
When does the new regulation apply?
The companies concerned are required to apply IFRS 18 for financial years beginning on or after January 1, 2027 at the latest. However, earlier application is also permitted. IFRS 18 must be applied retrospectively for the first time in accordance with IAS 8. This means that the comparative information for the comparative period must be adjusted accordingly. For the income statement, the adjustments are to be presented in a corresponding reconciliation statement.
Tip: Implement new standards at an early stage
Although the application of IFRS 18 will not become mandatory until 2027, the responsible persons in the companies should deal with the new requirements in good time. This is because it is essential to allow sufficient time to prepare for and implement the new standards. The introduction of the new categories in the income statement and the new disclosure requirements in particular will necessitate corresponding adjustments in accounting. An internal company analysis is particularly important with regard to the mandatory introduction of subtotals for operating profit and profit before financing and income taxes. The extent to which internal IT processes need to be adapted or changed should also be examined.
