On April 9, 2024, the International Accounting Standards Board (IASB) published International Financial Reporting Standard 18—Presentation and Disclosure of Financial Statements (IFRS 18 or the "New Standard"). IFRS 18 will replace International Accounting Standard 1—Presentation of Financial Statements (IAS 1). IFRS 18 will become effective for fiscal years beginning on or after January 1, 2027, allowing companies to adopt it earlier.
Key Changes Introduced by IFRS 18/SFRS(I) 18
New Categorisation in the Statement of Profit or Loss
IFRS 18 introduces a more structured categorisation framework in the statement of profit or loss, comprising three new sections:
- Operating
- Investing
- Financing
This framework provides users with a clearer understanding of an entity’s performance drivers and cash‑generating activities. The change will require companies to reassess account groupings, internal mapping structures, and the presentation logic currently used in financial reporting systems. This article will also discuss the relevant revisions and transitional provisions to other standards during the development of IFRS 18.
Revisions to Other Guidelines
While developing and publishing IFRS 18, the IASB also made relevant revisions to other International Financial Reporting Accounting Standards. The following revisions require special attention. Companies adopting IFRS 18/SFRS(I) 18 should also adopt these revisions.
International Accounting Standard 7 – Statement of Cash Flows (hereinafter referred to as “IAS 7”)
- The indirect method of cash flow from operating activities uses "operating profit or loss" as a unified starting point
The current IAS 7 requires that when preparing cash flows from operating activities using the indirect method, "profit or loss" should be used as the starting point, and adjustments should be made to reflect the company's cash flows from operating activities. However, the standard does not specify which item in the income statement "profit or loss" should be used. Therefore, in current practice, some companies use "total profit" as the starting point, while others use "net profit."
To reduce the diversity of current practices and improve the consistency of cash flow statements, the IASB revised IAS 7 along with IFRS 18, requiring all companies to use the same starting point, "operating profit or loss," when adopting the indirect method. Using the "operating profit or loss" subtotal item in the income statement as the starting point for adjusting cash flows from operating activities using the indirect method will eliminate some currently used adjusting items, such as income or expense items related to investing or financing cash flows, thereby simplifying the presentation of cash flow information from operating activities.
- Option to reduce interest and dividend cash flow classification
The current IAS 7 allows companies to choose whether to report cash flows from interest and dividends under operating, investing, or financing activities. This choice has led to different classifications of interest and dividend cash flows in current practice. To improve comparability between companies, the IASB revised IAS 7, reducing the choice of classification for interest and dividend cash flows. The table below compares the requirements before and after the revision:
| IAS 7 Classification (After Amendment) | |||
|---|---|---|---|
| Cash Flow Item | Classification under IAS 7 (Before Amendment) | IAS 7 Classification (After Amendment – Most Entities, Except Those Engaged in Specific Principal Business Activities) | IAS 7 Classification (After Amendment – Entities Engaged in Specific business Principal Activities) |
|
Interest received |
Operating or Investing |
Investing |
Classification of cash flows related to interest and dividends should remain consistent with the classification in the profit and loss statement; each type of cash flow is classified into only one category (i.e., Operating, Investing, or Financing). Note* |
|
Interest paid |
Operating or Financing |
Financing |
|
|
Dividends received |
Operating or Investing | Investing | |
|
Dividends paid |
Operating or Financing |
Financing |
Financing |
Note*:
For companies engaged in specific principal business activities, the classification of their interest and dividend cash flows should be consistent with the classification of related income and expenses in the income statement. This means that when preparing a cash flow statement, companies should refer to IFRS 18/SFRS(I) 18’s classification principles for dividend income, interest income, and interest expense in the income statement when determining the classification of cash flows for "dividends received," "interest received," and "interest paid."
If a company classifies dividend income, interest income, and interest expense into separate categories in its income statement, it should also classify all dividends received, interest received, and interest paid as cash flows from related activities in its cash flow statement. For example, if a company classifies all its interest expenses as financing activities in its income statement, it should also classify all interest payments as cash flows from financing activities in its cash flow statement.
It is worth mentioning that, according to IFRS 18/SFRS(I) 18, dividend income, interest income, and interest expense incurred by a company engaged in a particular principal business activity may each be classified into more than one category in the income statement. In this case, the company is allowed to make an accounting policy choice when preparing the cash flow statement, classifying each cash flow in full as a specific related activity (i.e., a "single category"). For example, if a company classifies part of its interest expense as operating and part as financing in its income statement, it can choose in the cash flow statement to classify all interest paid in full as cash flows from operating activities or in full as cash flows from financing activities.
International Accounting Standard 8 – Changes in Accounting Policies, Accounting Estimates and Errors (hereinafter referred to as “IAS 8”)
- The following content from the current IAS 1 will be integrated into IAS 8
- General characteristics of financial statements:
- Fair presentation and compliance with International Financial Reporting Accounting Standards
- Continuing operations
- Accrual Accounting
- Accounting policies:
- Disclosure of the selection and application of accounting policies
- General characteristics of financial statements:
- The title of IAS 8 will be changed to "International Accounting Standard 8 – Basis of Financial Statement Preparation"
- Impact of revising IAS 8
Transitional Provisions
IFRS 18 replaces IAS 1 and will be effective for fiscal years beginning on or after January 1, 2027. Early adoption is permitted. If an entity adopts the new standard early, it should disclose this fact in the notes to the financial statements. When adopting IFRS 18/SFRS(I) 18, entities should also adopt the relevant amendments to other International Financial Reporting Accounting Standards.
When adopting IFRS 18/SFRS(I) 18, enterprises should make traceability adjustments in accordance with the requirements of IAS 8.
- Disclosure of annual financial statements
While there is still some time before IFRS 18/SFRS(I) 18 takes effect, we recommend that companies begin analysing the new standard's reporting and disclosure requirements. Many companies will need to identify and collect information, and in some cases, may need to modify their internal information systems. We also advise companies to continuously monitor developments in their specific industry practices.
IFRS 18/SFRS(I) 18 Early Assessment & Transition Support Services
BDO Business Services Outsourcing (BSO) team offers a structured IFRS 18/SFRS(I) 18 transition programme designed to support organisations through every stage of implementation.
- Gap Assessment: Review current financial statement presentation and identify significant impacts under IFRS 18/SFRS(I) 18.
- COA Remapping and Impact Analysis: Map existing COA structures to IFRS 18/SFRS(I) 18 categories and assess system and consolidation impacts.
- Transition Roadmap: Develop a structured and practical transition plan with key milestones leading up to 1 January 2027.
- Implementation and Training Support: Provide updated templates, system alignment support, and finance‑team training.
Why Partner with BDO?
Our BSO team combines strong technical accounting expertise with deep experience in operational financial processes. We support clients through major accounting standard transitions with practical, scalable, and system‑ready approaches designed for real‑world implementation.
For more information, please contact:
Lim Mei Khim, Director of Business Services Outsourcing
Sally Sha, Senior Manager