December 2025

Happy New Year everyone!

I hope you had a good time closing out 2025 with your loved ones. With most companies operating on a 31 December year-end, many of you will be deep into annual financial statements over the coming weeks. So, we’ll start with the key points to keep in mind this reporting season.

Year-end reminders

IFRS amendments effective for 2025 annual reporting periods

Strictly speaking, there is only one set of IFRS amendments effective for 2025 annual reporting periods. These are the Lack of Exchangeability amendments to IAS 21, which clarify how to determine whether a currency is exchangeable and how to estimate a spot exchange rate when exchangeability is lacking. Entities dealing with non-exchangeable currencies will find more information in ​EY’s publication.​

However, you may recall from last month’s edition of Reporting Period that the IASB published six illustrative examples on reporting uncertainties in financial statements. As accompanying materials, these examples do not have an effective date, so they technically apply immediately. Or, as the IASB put it, ‘companies would be expected to implement any change in their reporting on a timely basis’. My bet is that ‘timely’ means incorporating them for 31 December 2025 year-ends, at least for your auditors 😉 Learn more in ​EY’s publication.​

Topical issues

When working on annual accounts, it’s always worth stepping back to consider how topical issues in the broader economy affect your company’s financial reporting, and whether everything is covered. Current issues include trade tariffs and other trade restrictions imposed by the US administration, ongoing wars, and volatile energy prices.

For a quick overview of how these issues map to IFRS requirements, I recommend ​Closing Out​ by Deloitte. For a deeper dive into the impact of tariffs, refer to ​BDO’s publication.​

Getting ready for 2026 requirements

It’s also worth planning early for the new requirements that are effective for annual periods beginning in 2026:

… and for IFRS 18, too

Although IFRS 18 does not become mandatory until annual periods beginning in 2027, it does require the restatement of comparatives. As a result, it makes sense to have a reasonably clear view as soon as possible of what your P&L layout will look like under IFRS 18.

This matters because changes to how expenses are tracked in ERP or accounting systems are likely to be needed. ​EY’s technical analysis​ of the new standard, including ​additional considerations for banks​ and ​illustrative financial statements under IFRS 18​, will be helpful here.

Technical Publications

2026 edition of EY International GAAP

EY has changed its publishing schedule and released the ​2026 edition​ of its accounting manual just before the turn of the year. Thanks to this, we can enjoy the new year’s edition right from the start of 2026.

IFRS Interpretations Committee Meeting

You’ll remember that the November IFRIC Update wasn’t available when I finalised the November edition of Reporting Period, so we’re catching up now. There’s quite a lot to cover, as the Committee is already receiving application questions on IFRS 18. Some companies have clearly started preparing early (see above!), and it looks like the Committee is in for a busy year or two.

Classification of non-income taxes

Building on previous agenda decisions on ​production-based royalty payments​ and ​tonnage taxes​, the Committee reiterated that taxes that do not meet the definition of income tax under IAS 12 cannot be presented within the income tax category under IFRS 18.

Learn more:

Next steps: Comments are open until 6 February 2026.

Scope of the requirement to disclose expenses by nature

Another request considered by the Committee focused on IFRS 18.83, which requires an entity that presents at least one line item comprising expenses classified by function in the operating category of the P&L to also disclose, for depreciation, amortisation, employee benefits, impairment of non-financial assets and write-downs of inventories, both the total amount and the amount included in each P&L line item.

Specifically, the request asked whether this requirement also applies when an entity presents expenses by function because of an explicit requirement in IFRS 18.75(b)-(c).

The Committee observed that IFRS 18.83 contains no exceptions or exclusions. It therefore concluded that the disclosure requirement applies whenever an entity presents any line item comprising expenses classified by function in the operating category in the P&L, including expenses classified by function required by IFRS 18.75(b)-(c).

Learn more:

Next steps: Comments are open until 6 February 2026.

Assessment of a specified main business activity in a parent’s separate financial statements

The Committee also considered how a parent assesses whether it has a specified main business activity when applying IFRS 18. In the fact pattern described, the reporting entity is the ultimate parent of a large group, and its only activities are holding and managing investments in subsidiaries.

The request asked whether the parent, for the purpose of its separate financial statements, has a main business activity of investing in unconsolidated subsidiaries. The Committee noted that IFRS 18.55 allows an entity to have a main business activity of investing in unconsolidated subsidiaries.

In the submitted fact pattern, the parent has no substantive activity other than holding and managing investments in subsidiaries and distributing returns from those investments. In these circumstances, concluding that investing in unconsolidated subsidiaries is not a main business activity would result in the parent having no main business activity at all, which would be inconsistent with the underlying requirements of IFRS 18.

The Committee therefore concluded that the absence of any other substantive activity is sufficient evidence that investing in unconsolidated subsidiaries is a main business activity. As a result, income and expenses from investments in unconsolidated subsidiaries should be classified in the operating category in the parent’s separate P&L.

Learn more:

Next steps: Comments are open until 6 February 2026.

Classification of gains and losses on derivatives used to manage net exposures

In response to a more specific query, the Committee considered how an entity applies IFRS 18.B70-B76 when classifying gains or losses on a forward contract used to manage foreign currency risk but not designated as a hedging instrument.

In the fact pattern, a group has offsetting foreign currency exposures arising from an investing asset and a financing liability, resulting in a net foreign currency liability. In the consolidated financial statements, interest income and expense, and the related foreign exchange differences, are classified in the investing and financing categories, respectively.

To manage the foreign currency risk of the net liability exposure, the group enters into an external forward contract, alongside internal derivatives that offset the gross exposures within the group, without applying hedge accounting.

The Committee focused only on the external derivative, as transfers of risk to parties outside the reporting entity are the only ones relevant in consolidated financial statements. In this scenario, the external derivative is used exclusively to manage the foreign currency risk of the net liability exposure, rather than the gross investing and financing positions. Accordingly, the Committee concluded that gains or losses on the external derivative should be classified in the same category as the income and expenses affected by the managed risk, which in this fact pattern is the financing category.

Learn more:

Next steps: Comments are open until 6 February 2026.

Meaning of ‘incremental’ transaction costs in IFRS 9

You may recall from previous issues of Reporting Period that I’ve been closely following the Committee’s discussion on a topic originally raised by a member of the IFRS Community. The question was whether legal advisory fees incurred during loan negotiations qualify as incremental transaction costs under IFRS 9, even if they are incurred before the loan is signed.

This prompted a discussion on our forums:

  • One view was that costs are ‘incremental’ only if they are directly triggered by executing the contract, meaning they would not have been incurred otherwise. This follows the IFRS 9 definition of an incremental cost as one that ‘would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument’.
  • The alternative view was that preparatory costs should also qualify, provided the contract is likely to be executed.

Both views had strong arguments, so I submitted the question to the Committee. The Committee’s final observations were that:

  • Costs that are directly attributable to the origination or issuance of a financial instrument, but are incurred before entering into the contractual arrangement, are ‘not precluded’ from being incremental; and
  • Transaction costs are recognised in the statement of financial position, often as prepayments or other assets.

Unfortunately, the agenda decision does not include any technical analysis because the Committee did not find evidence of diversity in practice. That said, the observations above suggest that the appropriate approach is the broader one, namely treating such costs as incremental even if they are incurred before executing the contract that gives rise to the financial instrument.

Learn more:

Next steps: The IASB will consider the agenda decision and, if no objections are raised, it will be finalised.

Work in Progress at the IASB

Exposure draft on risk mitigation accounting

The IASB has published the ​Exposure Draft​ on risk mitigation accounting, previously referred to as dynamic risk management. This is a complex topic that is relevant for companies that manage interest rate risk on a net basis by aggregating repricing risk across multiple portfolios of financial instruments.

Learn more:

Next milestone: The Exposure Draft is open for comment until 31 July 2026.

That’s all for this edition of Reporting Period. Thanks for reading and see you in the next issue!

Best regards,
Marek