IFRS 18 Presentation and Disclosure in Financial Statements

Abstract

IASB published IFRS 18 on April 9, 2024, stating IFRS 18 represents the most significant change to companies’ presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago. Furthermore, adding it will give investors better information about companies’ financial performance and consistent anchor points for their analysis. IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, with early implementation permitted. This thesis examines the new accounting standard IFRS 18 - Presentation and Disclosure in Financial Statements and its effects on the financial reporting, comparability and the decision making of the financial statement’s users. The research consists of a mixture of qualitative and quantitative data supplied with analysis as well as methods such as interview and method triangulation. The thesis commences by delineating the main objectives behind the new accounting standard followed by a comprehensive overview of the structural and conceptual changes it brings. The thesis is followed by an in-depth financial statement analysis and comparison of key ratios of the respective case entities, Reitan Retail and Salling Group before and after the implementation of IFRS 18. The analysis and its conclusions are finally assessed in determining how the implementation of IFRS 18 affects the case entities financial reporting, and if the accounting standard led to improved comparability and decision-making among the financial statement users. The analysis indicates that IFRS 18 impacts the presentation of the financial statements. The presentation of the financial statements is impacted by new defined subtotals, aggregation, and disaggregation of information as well as management defined performance measures. The related key ratios are impacted by IFRS 18 as well. This is highlighted by the variances identified between the different key ratios calculated based on reformulation of accounts, IAS 1 and IFRS 18. The thesis concludes that the implementation of IFRS 18 impacts the entities’ financial reporting by adding new defined subtotals, new requirements for aggregation and disaggregation of information as well as management defined performance measures. The accounting standard increases the basis of comparability between Reitan Retail and Salling Group by the increased consistency in the presentation of the income statement and the requirements for greater disaggregation. The basis for decision making among the financial statements users based on key figures and ratios is affected as well. The effect differs depending on what focus the financial statement user has. However, the analysis indicates that key ratios after IFRS 18 without reformulation of the balance sheet do not provide a fair basis for key ratios, except for the profit margin. This is due to the key ratios being derived in a combination of both the income statement and the balance sheet and IFRS 18 primarily introduces changes to the income statement, while the balance sheet remains largely unchanged. Many key ratios are derived in a combination of both the income statement and the balance sheet, which can lead to distortion.