IFRS 18 and IFRS 19 are both IASB standards effective from Jan 1, 2027, focusing on financial reporting improvements. IFRS 18 (Presentation and Disclosure in Financial Statements) replaces IAS 1, defining new, stricter structures for profit or loss, including management-defined performance measures (MPMs). IFRS 19 (Subsidiaries without Public Accountability: Disclosures) provides reduced disclosure requirements to simplify reporting for eligible subsidiaries.
In April, the IASB introduced IFRS 18, focusing on the presentation and disclosure of financial statements. This was followed in May by the release of IFRS 19, which addresses disclosures for subsidiaries without public accountability. Both standards mark significant advancements in International Accounting practices.
IFRS 19 enables eligible subsidiaries to apply the same recognition and measurement requirements in IFRS accounting standards as their parent company. Importantly, it removes the requirement for disclosures that are not aimed at users of financial statements of companies without public accountability.
IFRS 18 sets out overall requirements for the presentation and disclosure in financial statements. The IASB did not reconsider all aspects of IAS 1 when developing IFRS 18, but instead focused on the statement of profit or loss.
IFRS 18 and the consequential amendments to other IFRS accounting standards, which must be adopted at the same time, are effective for periods beginning on or after 1 January 2027 and apply fully retrospectively.
Summary. IFRS 18 replaces IAS 1 Presentation of Financial Statements as the primary source of requirements in IFRS accounting standards for financial statement presentation which will provide better information to users.
In order to apply IFRS 19, an entity must meet all of the following criteria at the end of its reporting period: • is a subsidiary • does not have public accountability, and • has a parent that produces consolidated financial statements available for public use that fully comply with IFRS Accounting Standards.
IFRS 18 requires entities to classify income and expenses into five categories, three of which are new – i.e. operating, investing and financing – and the income tax and discontinued operation categories.
IFRS 19, Subsidiaries without Public Accountability: Disclosures is a disclosure-only standard that permits eligible subsidiaries to apply IFRS Accounting Standards with reduced disclosure requirements. It lists the reduced disclosure requirements by IFRS Accounting Standard.
IFRS will require expenses to be classified into categories such as operating, investing, and financing while US GAAP will not impose such classifications. Both require disclosure of natural expenses in the footnotes (if not on the face of the financial statements).
AS-19 deals with the accounting policies applicable for all types of leases except certain listed below. A lease is a transaction whereby an agreement is entered into by the lessor with the lessee for the right to use an asset by the lessee in return for a payment or series of payments for an agreed period of time.
IFRS 19 is a disclosure-only Standard. An eligible subsidiary that applies IFRS 19 applies the requirements in other IFRS Accounting Standards except for disclosure requirements and, instead, applies the reduced disclosure requirements in IFRS 19.
The four pillars of IFRS S1 and S2 are governance, strategy, risk management and metrics and targets.
IFRS 18 sets out general presentation and disclosure requirements that apply across the primary financial statements and the notes. IFRS 18 does not change how entities recognise and measure items in the financial statements. The IASB developed these requirements in its Primary Financial Statements project.
The four core financial statements are the Balance Sheet (snapshot of assets, liabilities, equity), the Income Statement (revenues, expenses, profit over time), the Cash Flow Statement (cash inflows/outflows over time), and the Statement of Shareholders' Equity (changes in owner investment over time), all crucial for understanding a company's financial health.
IFRS 18 replaces IAS 1 and responds to investors' demand for better information about companies' financial performance. New requirements include: new categories and subtotals in the statement of profit or loss, disclosure of MPMs and enhanced requirements for grouping information.
IFRS 19 was issued in May 2024, with an effective date of 01 January 2027. It is also part of the IFRS's Disclosure Initiative projects, and its particular purpose is to reduce the disclosure burden faced by entities that do not have public accountability.
The Accounting Cycle: The Crucial Steps in the Accounting Process
Sales and Leaseback Transactions under AS 19. A sales and leaseback transaction involves, as the term suggests, transfer of an asset by an entity to another and taking it back on lease. Both the events, sale and leaseback, happens together but are accounted for separately in the books of both parties.
IFRS 18 mandates that companies classify and present operating expenses by nature and/ or function directly on the face of the income statement, with additional disclosures (by nature) for those items presented by function on the face of the income statement.
The IFRS 18 standard is effective for annual reporting periods beginning on or after 1 January 2027, with retrospective application required. For entities with a calendar year-end, this means the 2026 financial year will serve as the comparative period.
All companies that prepare financial statements that comply with IFRS Accounting Standards are required to apply IFRS 18 retrospectively from 1 January 2027. They are permitted to apply it earlier.
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To act as an auditor, a person should be certified by the regulatory authority of accounting and auditing or possess certain specified qualifications. Generally, to act as an external auditor of the company, a person should have a certificate of practice from the regulatory authority.