Change is in the air for IAS 1

Nothing is as certain as change, and in the ever-evolving world of finance and accounting, it’s necessary to keep up with the changing needs of investors and stakeholders. To modernise and streamline financial reporting, the International Accounting Standards Board (IASB) has embarked on a journey to replace the long-standing IAS 1 Presentation of Financial Statements. This will offer a more comprehensive and insightful view into a company's financial performance. 

The exposure draft, General Presentation and Disclosures, was published in December 2019. The IASB expects to publish the new IFRS Accounting Standard Presentation and Disclosure in Financial Statements (anticipated to be IFRS 18) in the first half of 2024. The effective date is proposed for annual periods beginning on or after 01 January 2027, with early application permitted.

An entity will now be required to present additional subtotals in its statement of profit or loss – in particular, operating profit or loss, operating profit or loss and income and expenses from integral associates and joint ventures, and profit or loss before financing and income taxes. This is expected to result in enhanced transparency, and comparability in disclosures. 

Currently, entities may disclose management performance measures (MPMs) outside of financial statements to communicate management’s view of the entity’s financial performance. The basis of these measures is often adjusted IFRS values (or ‘non-GAAP’ measures). The new standard will require MPMs to be disclosed to users of financial statements if they are used in public communications outside of financial statements, and also if they’re used to communicate management’s view of an aspect of the entity’s financial performance based solely on the statement of financial position.

For MPMs falling within disclosure requirements, disclosure will be contained within a single note and will include a description of why the MPM communicates management’s view of financial performance. The disclosure should also include a reconciliation to the most directly comparable total or subtotal specified by IFRS accounting standards.

The new standard will also expand the requirements for labelling, aggregation, and disaggregation of disclosures. This will include expanding on principles of aggregation and disaggregation, principles relevant to the use of ‘other’ label(s), and additional guidance related to the presentation and disclosure of expenses that are classified as operating in the statement of profit or loss, including explanations of unusual expenses.

The new accounting standard is anticipated to transform the structure of the statement of profit or loss we know today. The remaining requirements of IAS 1 pertaining to the other primary financial statements, general features on presentation and disclosures and guidance on accounting policy and note disclosures are expected to be carried forward into the new standard.