Hello,
The standout topic in April’s accounting headlines was undoubtedly IFRS 18, so that’s where we’ll start as well.
Other topics covered in this issue include:
- Recognising liabilities for climate-related commitments.
- Perpetual bonds: debt or equity?
- Reviewing intangible asset accounting.
- … and more.
Let’s dive in.
Note: You’re currently reading an older issue from the archive, so all links have been removed.
IFRS 18 Presentation and Disclosure in Financial Statements
On 9 April 2024, the IASB issued the long-anticipated IFRS 18, which replaces IAS 1 and amends IAS 7. Here are the key changes under IFRS 18:
- Two new subtotals have been added to the income statement: ‘Operating Profit’ and ‘Profit Before Financing and Income Taxes’. This change requires companies to categorise income and expenses into operating, investing, and financing activities.
- A new requirement mandates the reconciliation of non-GAAP measures with IFRS-specified subtotals, but this only applies to P/L measures such as adjusted profit. Other metrics like free/organic cash flow or net debt are not included.
- The statement of cash flows will start with operating profit for the indirect method, and the classification of cash flows related to interest and dividends has been standardised. Typically, dividends and interest paid will fall under financing activities, while those received will be recorded under investing activities.
While many IAS 1 provisions remain under IFRS 18, others, including the basis of financial statement preparation and disclosure of accounting policies, have moved to IAS 8, which will be retitled ‘Basis of Preparation of Financial Statements’.
IFRS 18 will be effective from 2027, giving us plenty of time to get acquainted with these changes. Currently, the standard is available exclusively to premium IFRS subscribers, but it will be accessible to all registered users for free from 2025 as part of the consolidated IFRS accounting standards.
For further insights, the IASB Project Summary is an excellent starting point. Also, we’ll be on the lookout in the coming months for detailed analyses by the BIG 4.
Technical Publications
Recognising a liability for climate-related commitments
Many companies, from large to small, have pledged to contribute to tackling the climate crisis. Last year, the IFRS Interpretations Committee debated whether these commitments constitute a present obligation that warrants a provision under IAS 37. This month, KPMG shared their perspective on this topic.
Are perpetual bonds equity?
The Exposure Draft on financial instruments with characteristics of equity released last year prompted the Footnotes Analyst team to examine this topic. What stands out in their work is the use of real-world scenarios, such as the perpetual bonds issued by the Air France-KLM group, to illustrate the ongoing debt vs. equity classification debate.
Work in Progress at the IASB
BCUCC project summary
You may recall from our November ’23 issue that the IASB discontinued its project on business combinations under common control (BCUCC). In April, they published a summary that outlines their preliminary views and stakeholder feedback. For anyone involved in a BCUCC transaction, the BCUCC Discussion Paper remains an invaluable resource.
Next milestone: None.
Comprehensive review of accounting for intangibles
The IASB has launched a thorough review of the accounting for intangible assets. This initiative comes in response to the substantial rise in economic importance of intangible assets and the differing treatments of acquired versus internally generated intangibles.
This is a large and complex project, and the IASB’s initial research will focus on defining the project’s scope and determining how to phase the work to achieve timely improvements to IFRS standards.
For those interested in exploring this topic further, I recommend two insightful articles by the Footnotes Analyst team. And no, they aren’t sponsoring this issue! 😉
- Intangible asset accounting and the ‘value’ false negative.
- Missing intangible assets distorts return on capital.
Next milestone: This project is just getting started.
Miscellany
Digital financial reporting
Over 90% of the world’s market capitalisation involves public companies that engage in some form of digital financial reporting, such as through XBRL. The IFRS Foundation has responded by launching a new Digital Financial Reporting page. Their introductory article is an excellent primer for those new to the topic.
Also noteworthy is this publication by the UK Financial Reporting Council, which analyses the adoption of XBRL across the UK.
IFRS Foundation’s 2023 annual report
The IFRS Foundation published its annual report and audited financial statements for the year ended 31 December 2023.
That’s all for this edition of Reporting Period. Your feedback is invaluable, so please feel free to reply directly to this email with your thoughts and comments.
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Best regards,
Marek