While the headline change is a new structure of the statement of profit or loss, the most significant impact for preparers is in the classification of income and expenses. IFRS 18 introduces a principles-based framework that requires entities to classify items based on the nature of the underlying asset, liability, transaction, or event – not the nature of the income or expense itself.
Our ‘Insights into IFRS 18’ series explains the new requirements of IFRS 18, highlighting some areas of the Standard that we believe will be challenging to apply in practice. They also aim to help users of IFRS financial statements to understand how financial statements will change when applying the new Standard.
IFRS 18 has given the statement of profit or loss a major facelift. It requires two new subtotals above the already existing ‘profit or loss’ total, dividing the statement into the following five discrete sections or categories – operating, investing, financing, income taxes, and discontinued operations.
Classification in accordance with IFRS 18 is not just a technical exercise – it directly impacts how users interpret financial performance. Misclassification can distort operating profit, affect covenant compliance, and influence investor perception. Preparers should understand the principles and exceptions thoroughly to avoid unintended consequences.
This article provides a comprehensive analysis of IFRS 18’s classification requirements, exceptions, and practical challenges. It builds on the high-level overview in our ‘Get ready for IFRS 18’ publication and goes deeper into application issues.
For details on the new subtotals and transition requirements, refer to our article ‘Insights into IFRS 18 – A snapshot of IFRS 18’s key requirements’ and our ‘Get ready for IFRS 18’ guide.