- Accounting News
IFRS 18 Presentation and Disclosure in Financial Statements
According to IFRS 18, an entity shall classify income and expenses in the statement of profit or loss into one of these five categories: operating, investing, financing, income tax, and discontinued operations.
To designate the category, the entity must assess whether it has a principal business activity specified in asset investment or customer financing. These activities have different income and expense classifications.
The operating, investing, and financing categories do not necessarily coincide with the classification on the statement of cash flows.
Additionally, IFRS 18 has established P&L subtotals, new aggregating and disaggregating guidance, management performance measures, and functions of the primary financial statements and notes.
IFRS 18 takes effect starting January 1, 2027, and requires a reconciliation for each item in the 2026 income statement, in accordance with IAS 1 and IFRS 18.
We recommend that Accountants develop a work plan to carry out modifications to the chart of accounts, processes, and systems.
Accounting Inquiries
Is depreciation expense classified in the operating category?
To determine which category depreciation expense is classified under, the entity's primary business activity and the type of asset being depreciated must first be evaluated.
If the entity's principal activity is not investing in assets or financing customers, the depreciation of an item of property, plant, and equipment is classified in the operating category, and the depreciation of an investment property is classified in the investment category.
If the entity's primary activity is investing in assets, the depreciation of an investment property is classified under operating activities.
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