CPA urges accountants to prepare for major IFRS 18 changes
The professional body has released a resource to help accountants prepare for significant changes to how profit and loss are presented in financial statements.
CPA Australia has advised accountants to start preparing for the start of IFRS 18, with the new standards set to introduce “a new era in financial reporting across industries”.
IFRS 18 Presentation and Disclosure in Financial Statements was issued by the International Accounting Standards Board (IASB) in April and will commence on 1 January 2027.
It replaces IAS 1, sets robust guidelines for income and expense classification, and enhances transparency and consistency in a profit or loss.
CPA Australia external reporting and assurance lead, Tiffany Tan, said the introduction of IFRS 18 is one of the most significant changes in accounting standards in over 20 years.
“These new requirements will fundamentally change how businesses report on their financial performance, including a new focus on the classification of income and expenses,” Tan said.
“With IFRS 18 effective from 1 January 2027, businesses are encouraged to start preparing now by assessing the impact on financial statements and updating their systems for compliance.”
IFRS 18 mandates two new subtotals – operating profit/loss and profit/loss before financing and income tax – ensuring a more consistent presentation of financial performance across industries and regions.
“With IFRS 18, companies must give more careful thought when aggregating and disaggregating financial data, replacing generic labels like "Other" with informative, specific categories that enhance clarity,” Tan said.
“IFRS 18 introduces disclosure requirements for management-defined performance measures (MPMs), providing stakeholders with management’s view of financial performance, which complements standard IFRS measures."
CPA Australia noted that the classification of income and expenses in IFRS 18 depends on entities’ ‘main business activities’, which require a significant degree of judgement and careful documentation by preparers and auditors.
“IFRS 18 reinforces the importance of revenue as a key benchmark for regulatory thresholds, impacting statutory reporting obligations and sustainability reporting in several jurisdictions,” Tan said.
“For instance, income previously reported as part of revenue may now be classified as investing or financing income under IFRS 18.”
Similarly, income once categorised as ‘other income’ may now be classified as operating revenue, depending on how the main business activities are defined.
"For Australian companies, if the reclassified income is substantial, this could impact which mandatory climate reporting group the entity falls under – Group 1 (consolidated revenue of $500 million or more), Group 2 (consolidated revenue of $200 million or more), or Group 3 (consolidated revenue of $50 million or more)," Tan said.
Tan said that auditors would also need to prepare for the change.
“Auditors will face new challenges too, especially in assessing the completeness and accuracy of financial disclosures related to MPMs and income classifications.”
The accounting body has released a resource to help prepare accountants for the major change in how a profit or loss is presented in financial statements. The new resource explores the key changes and how entities can prepare and considers the implications of using revenue as a benchmark.
About the author
