Under IFRS 18: Offsetting & Netting: What Has Really Changed? A Practical Guide for Accountants

IFRS 18, Presentation and Disclosure in Financial Statements, changes several important aspects of financial statement presentation, but offsetting and netting are not fundamentally new rules.

The core principle remains:

Do not offset assets and liabilities, or income and expenses, unless an IFRS Accounting Standard requires or permits it.

So, unlike the new P&L categories, Management-Defined Performance Measures and enhanced aggregation and disaggregation requirements, accountants do not need to learn a completely new offsetting model.

What IFRS 18 does require is careful presentation: accountants must distinguish between prohibited offsetting, permitted net presentation, and aggregation of information.

IAS 1 vs IFRS 18 — Side by Side

The key accountant message:

Offsetting rule → Largely unchanged

Aggregation/disaggregation framework → Enhanced

P&L classification → Changed significantly

These three concepts should not be confused.

Example 1 — Receivable and Payable

Assume an entity has:

Trade receivable: $8 million

Trade payable: $6 million

Side-by-Side Comparison

Incorrect presentation without an IFRS basis: Net Receivable — $2 million

IFRS 18 does not create a new rule here.

The accountant must still ask:

“Does an IFRS Accounting Standard specifically permit or require these amounts to be offset?”

If the answer is No → Do not offset.

For financial assets and financial liabilities, for example, the specific offsetting criteria are contained in IAS 32.

Example 2 — Disposal of Equipment

Assume equipment is sold for:

Sale proceeds: $120,000
Carrying amount: $100,000
Gain: $20,000

Does the P&L need to show both $120,000 and $100,000?

IAS 1 vs IFRS 18

This is an important distinction.

Presenting the $20,000 gain is not the same as improperly offsetting two unrelated items.

IFRS 18 specifically retains guidance allowing the result of certain incidental transactions, such as disposal of a non-current asset, to be presented or disclosed by netting the related income and expenses when that presentation reflects the substance of the transaction.

But there is a new IFRS 18 question:

Where should the $20,000 gain be classified in the P&L?

That is a classification question, not an offsetting question.

The accountant must apply IFRS 18’s Operating, Investing and other category requirements based on the nature of the underlying asset and the applicable classification rules.

Example 3 — ECL Allowance

Assume:

Gross trade receivables: $10 million
Expected credit loss allowance: $0.5 million

Statement of Financial Position:

Trade Receivables — $9.5 million

Is this prohibited offsetting?

No.

IFRS 18 explicitly distinguishes measurement net of valuation allowances from offsetting.

This is important for accountants because:

Net carrying amount ≠ automatically offsetting.

Example 4 — Government Grant Against Expenses

Assume:

Administrative expenses: $5 million
Government grant: $0.8 million

It may be tempting to simply present:

Net Administrative Expenses — $4.2 million

But the accountant should not conclude that IFRS 18 itself creates a new rule requiring gross presentation.

The first question is:

What does the applicable IFRS Accounting Standard require or permit?

For government grants, the accountant must first apply IAS 20, including its presentation requirements.

Only after determining the permitted accounting presentation should the accountant consider IFRS 18’s broader presentation and disaggregation requirements.

The sequence matters:

• Specific IFRS requirement
• Is net presentation permitted?
• IFRS 18 classification
• Aggregation / disaggregation
• Financial statement presentation

Offsetting Is Not the Same as Aggregation

This distinction becomes particularly important under IFRS 18.

Offsetting

Two recognized amounts of opposite sign are presented as one net amount.

Example:

Receivable $8m
Payable ($6m)

→ Net Receivable $2m

Aggregation

Items that share characteristics are grouped into a financial statement line item.

Example:

Salaries $5m
IT costs $1m
Professional fees $2m

→ Administrative Expenses $8m

IFRS 18 significantly strengthens the principles governing aggregation and disaggregation.

But that does not mean every aggregated balance represents offsetting.

Gross or Net? The Accountant’s Decision Process

Before presenting amounts net, follow this sequence:

STEP 1 — Identify the two amounts

What exactly is being combined?

STEP 2 — Determine whether this is actually offsetting

Are asset and liability, or income and expense, being reduced against each other?

STEP 3 — Check the specific IFRS Accounting Standard

Does IFRS require or permit the offset?

YES → Apply the specific requirements.

NO → Present separately.

STEP 4 — Apply IFRS 18 classification

For income and expenses, determine the appropriate IFRS 18 P&L category.

STEP 5 — Apply aggregation and disaggregation

Ask whether the resulting presentation provides a useful structured summary and whether material information is being obscured.

What Should Accountants Review Before IFRS 18?

Do not focus only on whether the ERP currently reports something “net.”

Review why it is net.

Particular attention should be given to:

• receivables and payables;
• financial assets and financial liabilities;
• foreign-exchange gains and losses;
• disposal gains and losses;
• government grants;
• reimbursements;
• provisions and related recoveries;
• impairment and valuation allowances; and
• broad “Other Income” and “Other Expenses” accounts.

For every net presentation, retain the answer to:

• What amounts are being netted?
• Which IFRS requirement permits or requires it?
• Does the presentation reflect the substance of the transaction?
• Has the resulting amount been correctly classified under IFRS 18?
• Is additional disaggregation required to avoid obscuring material information?

Accountant Readiness Checklist

• Identify all net balances currently presented in the financial statements.
• Distinguish genuine offsetting from aggregation and valuation allowances.
• Document the IFRS basis for each permitted offset.
• Review financial assets and liabilities against the relevant IAS 32 requirements.
• Review income and expense netting against the applicable IFRS Standard.
• Reassess P&L classification separately under IFRS 18.
• Review whether aggregated captions obscure material information.
• Update financial statement mappings and reporting instructions.
• Ensure accounting systems retain the gross underlying amounts, even when net presentation is permitted.
• Document significant presentation judgments.

The Key Message

IFRS 18 does not introduce a fundamentally new offsetting model.

The basic rule remains:

No IFRS permission → Do not offset.

But IFRS 18 makes the overall presentation analysis more structured.

For accountants, three questions now need to remain clearly separated:

1. Can these amounts be offset? Apply the relevant IFRS Standard.
2. Where does the resulting income or expense belong? Apply IFRS 18 classification.
3. Is the resulting information appropriately aggregated or disaggregated? Apply IFRS 18 presentation principles.

That distinction is essential.

Offsetting determines whether amounts can be shown net. Classification determines where they belong. Aggregation and disaggregation determine the appropriate level of detail.