Under IFRS 18: Titles & Labels — Same Flexibility, Greater Clarity

A Brief Guide for Accountants

The practical question is not merely whether a label is acceptable, but whether it accurately communicates the underlying financial information without obscuring material details

Unlike the significant changes introduced to the Statement of Profit or Loss, IFRS 18 largely retains the flexibility previously available under IAS 1 to select appropriate titles, headings, and descriptions.

An entity may continue using familiar terms such as Income Statement instead of Statement of Profit or Loss, provided the title accurately represents the information presented.

However, IFRS 18 introduces an important distinction: some financial performance subtotals now have defined meanings, while its enhanced aggregation and disaggregation requirements place greater emphasis on clear and informative labels.

For accountants, the challenge is not simply choosing different words. It is ensuring that the words used accurately describe what the financial statements report.

IAS 1 vs IFRS 18 — What Changed?

The accountant shift:

Before: Flexibility in presentation terminology.

Now: Flexibility retained, but with greater discipline around defined subtotals and informative descriptions.

1. Financial Statement Titles — Do They Need to Change?

Consider the title used for the income statement.

The same principle generally applies to Balance Sheet and Statement of Financial Position.

Accountant focus: IFRS 18 does not require entities to rename every primary statement. Review titles for clarity and consistency rather than changing established terminology unnecessarily.

2. Revenue vs Turnover — Which Label Is Correct?

Companies sometimes use different terms to describe similar income.

Although Revenue is widely recognized in IFRS reporting, the word Turnover is not automatically prohibited.

The accountant should consider whether the label clearly describes the amount recognized under the applicable accounting requirements and is understandable to users.

The objective is not to standardize every word, but to avoid ambiguity.

3. Operating Profit — This Is Where IFRS 18 Makes a Difference

Under IAS 1, operating profit was not a specifically defined subtotal.

Entities could therefore use different calculations and descriptions in practice.

IFRS 18 introduces a defined Operating Profit or Loss subtotal, calculated in accordance with its classification requirements.

Practical example

Assume an entity reports:

Operating profit under IFRS 18: $5 million

Restructuring expense included in operating profit: $1 million

Management also calculates:

Adjusted operating profit: $6 million

These amounts are not interchangeable.

Operating Profit — $5 million represents the IFRS-defined subtotal.

Adjusted Operating Profit — $6 million represents a different performance measure.

Depending on how and where it is used, the adjusted measure may qualify as a Management-Defined Performance Measure (MPM) and require the related IFRS 18 disclosures.

Accountant focus: A different label must not be used to disguise a different calculation. Accountants need to distinguish IFRS-defined subtotals from management-adjusted measures.

4. Profit or Loss Before Financing and Income Taxes — Another Defined Subtotal

Under IAS 1, entities were not required to present a standardized subtotal for Profit or Loss Before Financing and Income Taxes.

IFRS 18 introduces this as a defined subtotal, generally required in the Statement of Profit or Loss, subject to exceptions for certain entities with specified main business activities.

The objective is to improve comparability by distinguishing performance before the effects of financing and income taxes.

IAS 1 vs IFRS 18

Practical Example

Assume a company reports:

• Operating Profit: $5 million
• Share of profit from associates classified in the investing category: $0.5 million
• Finance costs classified in the financing category: $0.8 million
• Income tax expense: $1 million

Illustration assumes a non-financial entity without specified main business activities and no other income or expenses.

Accountant Takeaway

Under IFRS 18, Profit or Loss Before Financing and Income Taxes is not simply an alternative label for Profit Before Tax.

The two subtotals represent different measures:

Profit Before Financing and Income Taxes — $5.5m

Profit Before Tax — $4.7m

Accountants must ensure that the subtotal is calculated in accordance with IFRS 18 and that its title is not used for a different or management-adjusted amount.

The key principle is:

Defined IFRS subtotals must reflect their prescribed calculations, not management’s preferred definition of performance.

5. Other Income — Is the Label Informative Enough?

Consider a company reporting:

Other Income — $5 million

The amount includes:

• Government grants: $2.5 million
• Gain on disposal of equipment: $1.5 million
• Dividend income: $1 million

Under IFRS 18, the accountant should assess whether the components have sufficiently similar characteristics to be aggregated and whether material information is being obscured.

Importantly, these items may also belong to different IFRS 18 P&L categories, depending on the applicable classification requirements.

Therefore, the accountant must first classify the items correctly and then determine the appropriate aggregation and labeling.

“Other Income” is not prohibited. However, a broad label should not conceal material information that users need to understand.

Separate information may be presented in the primary statement or disclosed in the notes, as appropriate.

6. Other Expenses vs Meaningful Descriptions

A similar issue arises with expense captions.

Assume an entity presents:

Other Operating Expenses — $8 million

The balance includes:

• Restructuring costs: $4 million
• Litigation settlement: $2.5 million
• Other operating expenses: $1.5 million

The accountant should consider whether these items differ sufficiently in nature or other characteristics to warrant additional disaggregation.

The objective is not to create an excessively detailed statement.

It is to ensure that material information is not hidden behind a generic description.

7. Labels Must Be Consistent Across the Financial Statements

Consider the following presentation:

Although the figures agree, inconsistent descriptions may make the financial statements harder to follow.

A clearer approach would use consistent terminology or an understandable cross-reference.

Accountants should review the relationship between:

General Ledger → Trial Balance → Financial Statement Mapping → Primary Statements → Notes

A consistent reporting structure helps ensure that line-item descriptions remain accurate throughout the financial statements.

What Should Accountants Actually Change?

IFRS 18 implementation provides an opportunity to review the language used throughout financial reporting.

1. Review existing titles. Identify financial statement titles that are unclear or inconsistent. Retain established titles where they remain appropriate.
2. Protect IFRS-defined subtotals. Ensure that Operating Profit or Loss and other required subtotals are calculated and identified in accordance with IFRS 18.
3. Review generic labels. Examine material balances reported as Other Income, Other Expenses, Miscellaneous Costs, Other Assets, or Other Liabilities.
4. Align the reporting system. Review general ledger descriptions, reporting mappings, financial statement templates, and note headings.
5. Review comparative presentation. Ensure that changes in labels and presentation are reflected consistently in comparative information, as applicable.

Accountant Readiness Checklist

• Are financial statement titles clear and appropriate?
• Are IFRS-defined subtotals correctly calculated and identified?
• Could any label misrepresent the underlying amount?
• Do material balances require more informative descriptions?
• Are broad “Other” captions supported by an aggregation assessment?
• Are labels consistent between primary statements and notes?
• Have reporting templates and mapping instructions been reviewed?
• Is comparative information presented consistently?

The Key Message

IFRS 18 does not remove flexibility in choosing titles and labels. It makes the distinction between flexible terminology and defined financial information more important.

For accountants, three principles should guide the review:

Titles: Keep them clear and appropriate.

Defined subtotals: Use them correctly.

Line-item labels: Make them meaningful and sufficiently informative.