Date posted: 27/06/2024

A new look for the income statement

AASB 18 / NZ IFRS 18 to replace AASB 101 / NZ IAS 1

In brief

  • The new standard applies to financial years beginning on or after 1 January 2027, with early adoption permitted, and requires retrospective application
  • New defined categories for income and expenses classification and two new subtotals
  • The changes introduced may require system and process changes, so sufficient time must be allowed for implementation

The primary standard covering the form and content of financial statements, IAS 1 / AASB 101 / NZ IAS 1 will be repealed and replaced by the new IFRS 18 / AASB 18 / NZ IFRS 18 Presentation and Disclosure in Financial Statements. It is effective for financial reporting periods beginning on or after 1 January 2027 and will apply retrospectively (although early adoption is permitted). As comparative information is required this means the date of transition is actually 1 January 2026 – a mere 18 months away from the time of writing. Therefore adoption processes should allow sufficient time for full consideration and implementation of required changes.

What’s changed?

The changes aim to improve the reporting of financial performance, addressing widespread recognised issues with presentation inconsistency caused by the lack of detail in the current requirements. It is also the latest step in a global initiative to improve communication to users of financial statements.

Readers of the new IFRS 18 / AASB 18 / NZ IFRS 18 will recognise much of its content, because many of the general requirements about financial statements remain the same. This means there are no changes to the statement of comprehensive income and statement of changes in equity and only limited changes to the statement of cash flows and the statement of financial position (balance sheet).

Where the significant changes have been made is in the statement of financial performance (income statement / profit and loss statement). These changes aim to improve clarity and consistency by requiring the inclusion of the following new information on the face of the statement:

  • Two new subtotals must be provided (“operating profit” and “profit before financing and income taxes”), and
  • Income and expenses must be classified into defined categories (operating, investing, financing, income taxes and discontinued operations).

In the notes, most of the existing disclosure requirements remain unchanged but IFRS 18 / AASB 18 / NZ IFRS 18 does introduce or amend a number of disclosures. These include:

  • New disclosures in relation to management-defined performance measures which must be reconciled to IFRS-based measures,
  • Disclosure of specified expenses by nature must be provided, and
  • Enhanced guidance for aggregating and disaggregating information in all the primary financial statements.

The new standard also makes a range of consequential changes to many other existing standards. Most significant is changing the name of IAS 8 / AASB 108 / NZ IAS 8 to Basis of Preparation of Financial Statements so that its title now better reflects its purpose and content (which now includes some material previously in IAS 1 / AASB 101 / NZ IAS 1).

Who must apply it and when?

In New Zealand, NZ IFRS 18 was issued in May 2024 and applies to Tier 1 and 2 for-profit entities with a 1 January 2027 application date (and early adoption permitted). Disclosure concessions previously contained in NZ IAS 1 have been transferred to NZ IFRS 18 but there are no further Tier 2 RDR concessions for the new requirements.

In Australia, AASB 18 was issued in June 2024, but the application date varies, with the 1 January 2027 date applying only to for-profit entities (other than superannuation entities applying AASB 1056 Superannuation Entities). Not-for-profit private sector entities, not-for-profit public sector entities and superannuation entities applying AASB 1056, have until 1 January 2028 (with early application permitted). The delay will allow the AASB to consult on any necessary sector specific modifications. It will also allow for consultation with stakeholders on whether the reforms are relevant to Tier 2 entities applying AASB 1060.

What do I need to do?

All entities are encouraged to consider the content of the new standard so that they can plan their adoption or, in Australia, provide feedback to the AASB’s consultations. The IASB has acknowledged that the implementation of IFRS 18 will probably require system and process changes but believes these costs will be outweighed by the benefits users will gain from the improved comparability across entities and the additional information, particularly about performance measures.

Where can I find more information?

Additional information can be found at the following:

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