Under IFRS 18: Notes & Classifications in notes

A Brief Guide for Accountants

Does IFRS 18 mean more notes and longer financial statements?

Not necessarily. It means making the information more useful.

Under IAS 1, the notes already played an essential role in explaining the amounts presented in the financial statements and providing additional disclosures.

IFRS 18 builds on this foundation by explicitly defining two complementary roles:

Primary Financial Statements: Provide useful structured summaries of recognized assets, liabilities, equity, income, expenses and cash flows.

Notes: Provide material information necessary to understand the line items presented in the primary financial statements and supplement them with additional material information.

The change is not simply about increasing disclosure volume. It is about improving how information is organized, summarized and communicated.

For accountants, the practical challenge becomes deciding what belongs in the primary statements, what belongs in the notes, and how both should work together.

IAS 1 vs IFRS 18 — What Changed?

The Accountant Shift

With IAS 1: Prepare the primary statements and provide the required supporting disclosures.

With IFRS 18: Determine the appropriate structured summary, identify the material information needed to understand it, and decide where that information should be presented.

What Is Clarified, Enhanced, or Newly Required?

Not all changes introduced by IFRS 18 represent new disclosure obligations. Accountants should distinguish between three developments:

The accountant takeaway: IFRS 18 is not simply about adding disclosures. It clarifies where information belongs, strengthens how information is presented, and introduces specific new disclosure requirements for MPMs.

1. Primary Statements vs Notes — Understanding Their Roles

The fundamental IFRS 18 concept can be expressed through two questions:

Primary Financial Statements: What is the overall financial picture?

Notes: What material information is needed to understand that picture?

The primary statements should not be overloaded with unnecessary detail. Equally, material information should not disappear into broad captions without sufficient explanation.

The accountant must determine the appropriate balance.

Practical Example — Other Operating Expenses

Assume an entity reports other operating expenses totaling $10 million, comprising:

• Restructuring costs: $4 million
• Litigation costs: $2.5 million
• IT expenditure: $2 million
• Other expenses: $1.5 million

This is an illustrative presentation, not a mandatory IFRS 18 format. Depending on the circumstances, certain material components may need separate presentation in the primary statement rather than only in the notes.

Accountant Takeaway

IFRS 18 does not require every expense to appear separately on the face of the Statement of Profit or Loss.

Instead, accountants should assess whether the primary statement provides a useful structured summary and whether the notes contain the material detail necessary to understand it.

2. More Detail Does Not Always Mean Better Reporting

A common misunderstanding is that IFRS 18 requires accountants to disaggregate everything. The reality It does not.

Excessive detail can make financial statements more difficult to understand, just as excessive aggregation can obscure material information.

Consider an entity with 20 different administrative expense categories.

Excessive Detail vs Structured Presentation

The second presentation may be more useful if it appropriately summarizes similar items while providing the material detail in the notes.

Accountant Takeaway

The objective is not to maximize the number of line items or disclosures.

It is to achieve the right balance between meaningful aggregation and sufficient disaggregation.

3. Broad Captions — When Is “Other” Too Broad?

Captions such as Other Income, Other Expenses, Miscellaneous Costs, Other Assets and Other Liabilities are not automatically prohibited.

However, they require careful assessment when they contain material amounts with different characteristics.

Practical Example — Other Income

Assume an entity reports:

Other Income — $5 million

The balance includes:

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

Under IFRS 18, accountants must first determine the appropriate P&L classification of each item. These amounts may belong to different categories and therefore cannot automatically be grouped into a single line item.

Once classification is established, the accountant must assess the appropriate aggregation, presentation and disclosure.

Accountant Takeaway

“Other Income” is not prohibited, but it should not become a hiding place for material information.

The important question is whether the label and supporting detail faithfully communicate the nature of the underlying amounts.

4. Management-Defined Performance Measures — A New Note Requirement

This is one of the most significant new disclosure requirements introduced by IFRS 18.

Under IAS 1, there was no equivalent dedicated disclosure framework for Management-Defined Performance Measures (MPMs).

IFRS 18 introduces specific disclosures for qualifying MPMs, presented together in a single note.

Practical Example

Assume an entity reports:

Operating Profit — $20 million

Management publicly communicates an adjusted operating profit figure that excludes restructuring expenses of $3 million.

Under IFRS 18, qualifying MPM disclosures also include management’s explanation of why the measure is useful, the required reconciliation to the most directly comparable IFRS subtotal or total, and the required tax-effect and non-controlling-interest information for reconciling items.

Accountant Takeaway

An MPM is not simply an additional number management can insert into the financial statements without explanation.

Accountants must identify qualifying measures, prepare the required reconciliations and ensure that the disclosures are complete.

5. The Primary Statements and Notes Must Tell the Same Story

IFRS 18 reinforces the importance of consistent communication across the financial statements.

Consider:

Statement of Profit or Loss

Administrative Expenses — $12 million

Related Note

The note should reconcile to the related primary-statement amount, subject to the applicable presentation basis.

However, numerical agreement alone is not sufficient.

The descriptions, classifications and disclosures must also be consistent.

Accountant Takeaway

A note is not merely a breakdown of a number. It must help users understand what that number represents.

6. Comparative Information — Do Not Forget the Notes

IFRS 18 becomes effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.

Its transition requirements include retrospective application, subject to the Standard’s specific provisions.

This means accountants must consider the impact of implementation on comparative information, including relevant note disclosures.

Accountant Takeaway

Do not focus exclusively on the first IFRS 18 reporting year.

The comparative period, supporting schedules and note disclosures should be included in the implementation plan.

7. What Should Accountants Change in Practice?

IFRS 18 implementation should involve more than updating the Statement of Profit or Loss template.

1. Review major line items. Assess whether each primary-statement line item provides an appropriate structured summary and whether additional material information is required in the notes.
2. Reassess aggregation and disaggregation. Examine significant balances and broad captions to determine whether they combine items with dissimilar characteristics or obscure material information.
3. Map the primary statements to the notes. Establish a clear reporting trail:

General Ledger → Trial Balance → IFRS 18 Classification → Primary Statement → Related Note

4. Identify MPM disclosures. Review publicly communicated management performance measures and determine which qualify as MPMs under IFRS 18.
5. Update comparative information. Review the presentation and disclosures required for the comparative period.
6. Strengthen disclosure controls. Ensure that amounts, descriptions and cross-references are consistent throughout the financial statements.

Accountant Readiness Checklist

Before finalizing the IFRS 18 reporting package:

• Do the primary statements provide useful structured summaries?
• Do the notes contain material information necessary to understand those summaries?
• Could aggregation obscure material information?
• Is additional disaggregation needed in the primary statements or notes?
• Are broad “Other” captions adequately supported?
• Have items been classified correctly before being aggregated?
• Do note amounts reconcile with the primary statements?
• Are required MPM disclosures complete?
• Have comparative note disclosures been reviewed?
• Are descriptions and cross-references clear and consistent?
• Have reporting templates and disclosure controls been updated?

The Key Message

IFRS 18 does not make financial reporting better by simply adding more notes. It makes reporting more useful by clarifying the relationship between the primary financial statements and the notes.

The distinction is straightforward:

Primary Statements: Provide the structured financial picture.

Notes: Explain and supplement that picture with material information.

For accountants, the practical question is no longer simply whether a disclosure has been included, but whether the right information is presented in the right place, at the right level of detail, without obscuring what matters.

The IFRS 18 approach: Summarize with purpose. Disaggregate where necessary. Disclose what matters.