IFRS 18: New regulations, consequences, implementation

Your expert for questions

Verena Glutting
Director, Financial Reporting at PwC Deutschland
Phone: +49 171 7614784
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From analysis to implementation

Two new mandatory subtotals

What are the main requirements of the new IFRS 18 standard? It introduces two mandatory subtotals in the statement of profit and loss: operating profit or loss and profit or loss before financing and income taxes. These subtotals are based on the classification of income and expenses into the following categories: operating, investing and financing. In addition, the other categories of income taxes and the result from discontinued operations are also shown. Companies should therefore be sure to analyse how this affects their respective key performance indicators and control parameters.

The requirements of IFRS 18 also introduce additional disclosures in the notes, one of which relates to management-defined performance measures (MPMs). These are performance indicators communicated publicly by management outside the financial statements that are not specified by IFRS accounting standards.

Company-specific analysis required

It is therefore clear that the implementation of IFRS 18 requires a holistic approach. Companies have to analyse the extent to which they need to change processes and IT systems. As the classification of income and expenses depends on the main business activity, a company-specific analysis must show how IFRS 18 will affect the company's most important stakeholders.

Indicative effects of IFRS 18 on the profit and loss statement

Companies must analyse in detail the mandatory introduction of subtotals for operating profit or loss and profit or loss before financing and income taxes, as well as the respective classification of income and expenses. In some cases, the classification of income and expenses will change, for example in the case of currency translation effects. This is because IFRS 18 requires these items to be recognised in the same category as the income and expenses that led to the translation differences.

Using AI for the implementation of IFRS 18

IFRS 18 introduces a new structure for the statement of profit and loss. To facilitate implementation, PwC uses AI enabled technology to facilitate the implementation. It uses the information from the annual report to quickly provide an initial indication of what changes the respective company needs to make to the structure and classification of income and expenses in the statement of profit and loss. This analysis serves as the basis for our integrated project approach to refine the strategy for the successful implementation of the new IFRS 18 standard.