IFRS 18 sets out general presentation and disclosure requirements that apply across the primary financial statements and the notes.
Scope
IFRS 18 applies to all general purpose financial statements prepared in accordance with IFRS. It sets out requirements for the presentation of information in the financial statements, while other IFRS set out recognition, measurement, presentation and disclosure requirements for specific transactions and other events (IFRS 18.1-4).
General purpose financial statements
General purpose financial statements is a term defined in Appendix A to IFRS 18 as a particular form of general purpose financial reports that provides information about the reporting entity’s assets, liabilities, equity, income and expenses.
This definition links to the broader concept of general purpose financial reports, which are reports that provide financial information about a reporting entity that is useful to primary users in making decisions about providing resources to the entity. These decisions include investing in shares and other equity instruments and providing financing.
Here are examples of financial statements or reports that typically won’t be considered general purpose:
- Internal financial statements, such as management accounts and board reporting packs.
- Financial statements prepared on a tax basis specifically to accompany a tax return.
- Covenant-specific statements prepared using recognition and/or measurement provisions specified in financing agreements.
- Regulatory statements for which the regulator prescribes the basis and content of reporting for its own supervisory purposes.
- Statements prepared under the financial reporting provisions of a project grant or similar funding agreement.
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Interim financial statements
In principle, IFRS 18 doesn’t apply to interim financial statements, which are prepared under IAS 34. However, IFRS 18 applies to interim financial statements in respect of the principles of aggregation, offsetting, and the identification and disclosure of management-defined performance measures (IFRS 18.5).
Statement of cash flows
Although the statement of cash flows is governed by IAS 7, the general requirements for financial statements, the principles of aggregation and disaggregation, and the requirements relating to explanatory notes in IFRS 18 still apply to it (IFRS 18.3).
A complete set of financial statements
A complete set of financial statements prepared under IFRS comprises (IFRS 18.10):
- a statement of financial performance;
- a statement of financial position;
- a statement of changes in equity;
- a statement of cash flows;
- notes;
- comparative information in respect of the preceding period as specified in IFRS 18.31-32; and
- a ‘third’ statement of financial position (if applicable).
The first four statements in the list are the primary financial statements. A complete set of financial statements therefore consists of the primary financial statements and the notes. However, entities may, and often do, use titles for these statements other than those used in IFRS 18 (IFRS 18.11).
The roles of the primary financial statements and the notes
Investors and other users of financial statements tend to focus more on information presented in the primary financial statements than on information disclosed in the notes. It’s worth noting here that the title of IFRS 18 distinguishes between ‘presentation’ and ‘disclosure’, terms that were used interchangeably in IAS 1. In this context, IFRS 18.15 explains that an entity:
- presents information in the primary financial statements; and
- discloses information in the notes.
The role of the primary financial statements is to provide structured summaries of assets, liabilities, equity, income, expenses and cash flows. These structured summaries must be useful to users of financial statements in obtaining an understandable overview of these items, comparing different entities and different reporting periods for the same entity, and identifying items or areas for which they may wish to seek further disclosures in the notes (IFRS 18.16).
In contrast, the role of the notes is to provide material information necessary to understand the line items presented in the primary financial statements and to supplement them with additional information. An entity must consider these different roles when determining whether information should be included in the primary financial statements or in the notes (IFRS 18.16-18, B6-B7).
Entities are also required to consider whether additional disclosures are necessary when compliance with the specific requirements in IFRS is insufficient to enable users of financial statements to understand the effects of transactions, other events and conditions on the entity’s financial position and financial performance (IFRS 18.20).
Line items and subtotals
IFRS 18 specifies the line items and subtotals required for each primary financial statement. However, in line with the materiality principle, entities are not required to provide a specified presentation or disclosure if the resulting information is not material. This applies even where IFRS 18 includes the presentation or disclosure in a list of specific requirements (IFRS 18.19, 22-23).
In addition, IFRS 18 requires entities to present additional line items and subtotals if they are necessary for a primary financial statement to provide a useful structured summary. When an entity presents additional line items or subtotals, they must (IFRS 18.24):
- comprise amounts recognised and measured in accordance with IFRS;
- provide a useful structured summary;
- be consistent from period to period; and
- be displayed no more prominently than the totals and subtotals required by IFRS.
Frequency of reporting
Entities should provide a complete set of financial statements at least annually (IFRS 18.28). However, local regulatory requirements typically require listed companies, and other public interest entities, to prepare financial statements more frequently, usually on a quarterly or semi-annual basis. These are often interim financial statements governed by IAS 34. Local regulations may, however, require interim financial statements to comprise a full set of financial statements prepared under IFRS 18.
Annual financial statements are normally prepared for a one-year period. However, some companies, particularly in the retail sector, report on a 52-week basis because retail trade often has a distinct weekly cycle. IFRS 18 does not preclude this practice (IFRS 18.29). Marks and Spencer Group plc is an example of a company using a 52-week reporting period:
Comparative information
Comparative information, that is, information for the preceding reporting period, must be provided for all amounts reported in the current period’s financial statements unless an IFRS permits or requires otherwise. Comparative information must also be provided for narrative and descriptive information if it is necessary for an understanding of the current period’s financial statements. For example, an entity may disclose in the current period details of a legal dispute whose outcome was uncertain at the end of the preceding period and which remains unresolved (IFRS 18.31-32, B13).
An entity may provide comparatives in addition to the minimum required, provided that the additional information is prepared in accordance with IFRS. This information may consist of one or more of the primary financial statements and need not comprise a complete set of financial statements. In such cases, the entity must disclose in the notes information relating to those additional primary financial statements (IFRS 18.B14-B15).
Notes
The notes should include the following (IFRS 18.113):
- the basis of preparation of the financial statements;
- material accounting policy information;
- information required by IFRS that is not presented in the primary financial statements; and
- other information that is not presented in the primary financial statements but is necessary for an understanding of any of them.
The notes should be presented in a systematic manner that enhances the understandability and comparability of the financial statements. This may involve giving prominence to areas of the entity’s activities that it considers most important to an understanding of its financial performance and financial position, for example by grouping together information relating to specific business activities.
The notes may also be organised by grouping together information about items measured on a similar basis, such as assets measured at fair value. Alternatively, they may follow the order of the line items presented in the financial statements, followed by other disclosures such as contingent liabilities and unrecognised contractual commitments (IFRS 18.114-115, B112).
Each item in the primary financial statements should be cross-referenced to the related information in the notes (IFRS 18.114).
Finally, an entity also discloses basic information about the company, including its domicile and legal form, country of incorporation, address of its registered office, the nature of its operations, and the name of its parent and ultimate parent, if applicable (IFRS 18.116).
Management of capital
Paragraphs IFRS 18.126-129 set out the disclosures relating to management of capital. These apply to all entities, whether or not they are subject to external capital requirements.
Part III of the illustrative examples accompanying IFRS 18 includes two examples of disclosures relating to capital:
- Example III-1: An entity that is not a regulated financial institution, and
- Example III-2: An entity that has not complied with externally imposed capital requirements.
Effective date and transition
IFRS 18 was published by the IASB in April 2024 and becomes effective for annual reporting periods beginning on or after 1 January 2027. Once effective, IFRS 18 will replace IAS 1. Read more about the transition to IFRS 18.
More about IFRS 18
See other pages relating to IFRS 18:
Overview of IFRS 18Statement of Profit or Loss
Categories in the Statement of Profit or Loss
Specified Main Business Activities
Presentation and Disclosure of Operating Expenses
Cost of Sales
Other Comprehensive Income
Statement of Financial Position
Classification of Assets and Liabilities as Current and Non-current
Statement of Changes in Equity
Consistency of Presentation, Disclosure and Classification
Aggregation and Disaggregation in Financial Statements
Offsetting in Financial Statements
Transactions with Owners in Their Capacity as Owners
Identification of Management-Defined Performance Measures
Presentation and Disclosure of Management-Defined Performance Measures
Transition from IAS 1