Primary Financial
Statements

Rika Suzuki, IASB member

The views expressed in this presentation are those of the presenter, not necessarily those of the IFRSFoundation, International Accounting Standards Board or the International Sustainability Standards Board.
Copyright © 2023 IFRS Foundation. All rights reserved.

2IFRS 18 – the new requirements

New required subtotals instatement of profit or loss,
including ‘operating profit’

Disclosures about
management-defined
performance measures(MPMs)

Better information for better decisions– increases comparability, transparency
and usefulness of information

Enhanced guidance ongrouping of information(aggregation anddisaggregation)

Publication date: Q2 2024
Effective date: 1 January 2027

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Who will the requirements affect?
All stakeholders in all industries in jurisdictions
that apply IFRS Accounting Standards
Will impact:• how companies present and disclose information,
but not their bottom-line financial performance• the quality of information, including digital
information, available for investors• the scope of information subject to assurance byauditors and enforcement by regulators

Categories and subtotals

5Categories and subtotals in the statement of profit or loss

Investors’ concerns

IFRS 18 introduces• Difficulty comparing
financial performance
because companies’
statement of profit orloss vary in content andstructure• Three defined categories to provide a consistent
structure of statement of profit or loss:• operating• investing• financing• Two new required subtotals to enable analysis:• operating profit• profit before financing and tax

6Statement of profit or loss—general corporate
Revenue
Cost of goods sold
Gross profit
Other operating income
Selling expense
OperatingResearch and development expenses
General and administrative expenses
Goodwill impairment loss
Other operating expenses
Operating profit
Share of the profit from associates and joint ventures
Investing
Gains on disposals of associates and joint ventures
Profit before financing and income tax
Interest expense on borrowings and lease liabilities
Financing
Interest expense on pension liabilities
Profit before tax
Line items illustrate what is classified in each category and do not necessarily denote line
Income tax expense
items that a company would present. An entity would present line items that provide a usefulProfit for the year
structured summary of its income and expenses.

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Defining the categories
OperatingInvesting

Income and expenses notclassified in other categories

Income and expenses from:••

Includes, but is not limited
to, income and expenses
from an entity’s main
business activities

Includes volatile andunusual income andexpenses arising from anentity’s operations•

associates and joint
ventures accounted forusing the equity method•

cash and cash equivalents•

assets that generate areturn individually andlargely independently ofother resources held by anentity

Financing•All income and expenses
from liabilities that involveonly the raising of finance(eg bank loans, bonds)•

Interest expense and theeffects of changes ininterest rates from otherliabilities (eg leaseliabilities, pension liabilities,decommissioning liabilities)8Companies with specified main business activities
Operating profit is intended to include, but is
not limited to, income and expenses from anentity’s main business activities

Operating category

Investing category
Specific income
and expenses

Some entities, such as banks, classify income
and expenses in the operating category thatwould otherwise be classified in the investingor financing categories

Financing category
Specific incomeand expenses

Management-definedperformance measures

10Management-defined performance measures (MPMs)

Investors’ concerns

IFRS 18 introduces• Investors find MPMs
useful but they haveconcerns about lack oftransparency of how
these measures arecalculated• Requirement to disclose in a single note:• Statement that MPM reflects management’sview• Explanation of why MPM is reported and how
it is calculated• Reconciliation to IFRS-specified number• Explanation of any changes to MPM

11What are MPMs?
Performance measures
Financial performance measures

Subtotals of income & expenses

MPMs

IFRS-Specified• Adjusted profit or loss
• Adjusted operating
profit• Adjusted EBITDA• Operating profit• Operating profit
beforedepreciation,amortisation andimpairments

Other measures
not subtotals of
income andexpenses• Free cash flow
• Return on equity• Net debt

Non-monetary
performancemeasures• Number ofsubscribers• Customer
satisfaction score• Store surface

12What might a reconciliation look like?

20X1

Tax effect

Effect on
non-controllinginterests

Operating profit (IFRS-specified)

41,270Restructuring in Country X(incl. in employee benefits)

5,400(900)1,020

Revenue adjustment (incl. in revenue)

6,200(1,550)—Adjusted operating profit (MPM)

52,870Aggregation anddisaggregation

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Grouping – aggregation and disaggregation – of information

Investors’ concerns

IFRS 18 introduces• Some companies don’t
provide enough detailed
information• Enhanced requirements for grouping ofinformation• Important information isobscured• Guidance on whether information should be in
the primary financial statements or the notes• Disclosures about items labelled ‘other’15

Roles of the primary financial statements and the notes
Role of primary financial statements

Role of the notes

Provide a useful structured summaryfor:• obtaining an understandable
overview of the entity’s assets,
liabilities, equity, income, expenses
and cash flows• making comparisons between
entities and reporting periods• identifying items or areas about
which users may wish to seek
additional information in the notes

Provide further information necessary
to understand items included in primaryfinancial statements
Supplement primary financialstatements with other information tomeet objectives of financial statements

16Aggregation and disaggregation
Principles for
aggregation anddisaggregation

Single dissimilar characteristic can be enough to disaggregate if resulting
information is material

Using meaningfullabelsUse meaningful labels• use ‘other’ only when unable to find more informative label• label as precisely as possible (eg ‘other operating expenses’)
Additional disclosures required if aggregated amounts of immaterial items
are sufficiently large that users might question whether amount includes
material items

Disclosure ofspecified expenses
by nature

Disclose amounts of five specified expenses by nature included in eachline item in the statement of profit or loss (see next slide)Amounts disclosed need not be expense amount17

Specified expenses by nature note—illustrative example
This table shows the amount of depreciation,amortisation, employee benefits, impairment
losses and write-down of inventories included ineach line item in the statement of profit or loss.
Each amount disclosed for depreciation andemployee benefits includes both amounts thathave been recognised as an expense in thereporting period and amounts that have been
included in the carrying amount of inventory andproperty, plant and equipment.

(in currency units)

20X2​

20X1

Cost of goods sold​

23,71021,990Research and development expenses

2,518

2,596

General and administrative expenses

4,975

4,975

Total depreciation

31,20329,561

Research and development expenses​

13,842

12,693

Total amortisation

13,842

12,693

Cost of goods sold​

61,64657,174

Selling expenses

7,514

7,111

Research and development expenses

6,547

6,750

​General and administrative expenses

5,421

5,824

Total employee benefits

81,12876,859Research and development expenses

1,600

1,500

​Goodwill impairment loss

4,500

–

Total impairment loss

6,100

1,500

Cost of goods sold

2,775

2,625

–

4,900

2,775

7,525

Other operating expenses
Total write-down of inventories

Other topics

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Changes to the statement of cash flows
Operating profit subtotal the starting point for indirect methodof reporting cash flows from operating activities
Cash flows

Entities without specified main Entities with specified main
business activities
business activities(e.g. banks and insurers)

Interest received

Investing activities

Interest paid

Financing activities

Dividends received

Investing activities

Dividends paid

Financing activities

Single category (eitheroperating, investing orfinancing activities)

Financing activities

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Transition period and effective date
Q2/2024

1/1/2027
Transition Period

IFRS 18
issuedEffectivedate

Prepare financial
statements

Financialstatements
issued✓ Required from 2027; can be applied earlier✓ Comparative periods in interim and annual financial statements restated✓ Reconciliation of statement of profit or loss required for immediately preceding comparativeperiod

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