IFRS 18 Presentation and Disclosure in Financial Statements was issued by the International Accounting Standards Board (IASB) in April 2024. This new IFRS Accounting Standard is examinable in the Foundation in Accountancy (FIA) exams from September 2025 onwards.

The FIA exams consist of:

• Recording Financial Transactions (FA1)
• Maintaining Financial Records (FA2)
• Financial Accounting (FA/FFA)

This article takes the form of a series of questions and answers about IFRS 18. The aim of this is to assist candidates in understanding how and to what extent IFRS 18 is examinable in the FIA exams.

Although the detailed content and requirements of IFRS 18 are not examinable in FA1, IFRS 18 dictates the content and presentation requirements of financial statements and candidates do need to be aware of these.

For example, when considering learning outcome B3(b):
Identify the content of a statement of financial position and a statement of profit or loss and other comprehensive income.

The terminology used will be largely consistent with IFRS 18. As in prior years, there may be slightly different terms used in financial statements. An example may be that ‘Trade payables’ is used in place of ‘Payables for goods and services received’, ‘Administrative expenses’ is used in place of ‘General and administrative expenses’, or ‘Profit for the year’ is used in place of ‘Profit’.

The most significant amendment to other IFRS Accounting Standards which has resulted from the issue of IFRS 18 are changes to IAS 7 Statement of Cash Flows. IAS 7 is examinable in the FA exam and candidates should be aware of the key changes to IAS 7, including:

• ‘Operating profit’ is used instead of ‘Profit before income taxes’ (IFRS 18)/ ‘Profit before tax’ (IAS 1) when calculating net cash from operating activities using the indirect method
• Interest received is only included in investing activities 
• Interest paid is only included in financing activities 

There are five categories in the statement of profit or loss:

• the operating category
• the investing category
• the financing category
• the income taxes category, and
• the discontinued operations category (not relevant for FIA exams).

The operating category is used for income and expenses which are not classified in one of the other four categories. This is the default category that comprises all income and expenses from a company’s operations.

The investing category is used for income and expenses from a company’s investments (eg dividends from equity investments, rental income from investment properties, or interest revenue from debt investments).

The financing category is used for income and expenses from liabilities such as loans or leases (eg interest expenses related to such liabilities).

The income taxes category is used for tax income and expenses which arise from applying IAS 12 Income Taxes.

The discontinued operations category is used for income and expenses arising from discontinued operations, as defined by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. This will not be examinable in any of the FIA exams.

IFRS 18 expects that all entities will follow the same classification requirements for income and expenses, with some modifications for entities that invest in assets as a main business activity (such as investment entities, investment property companies and insurers) and entities that provide financing to customers as a main business activity (such as banks).

The accounting requirements for entities that invest in assets or provide financing to customers as a main business activity are not examinable in any of the FIA exams.

One of the most important changes in IFRS 18 is the introduction of mandatory subtotals in the statement of profit or loss. These are:

• operating profit or loss
• profit or loss before financing and income taxes, and
• profit or loss.

Gross profit and profit before income taxes are not mandatory subtotals. However, many entities will present these as additional subtotals because they are necessary for the statement of profit or loss to provide a useful structured summary of income and expenses.

An example of a statement of profit or loss is presented below:

To allow candidates to focus on the information most relevant to the question, they may only be provided with summarised extracts from the financial statements where appropriate.