IAS 1 and IFRS 18: Presentation of financial statements
What a full set of accounts contains, current versus non-current, OCI, and the new IFRS 18 profit or loss categories from January 2027.
ACCA exams this helps with: FR Financial Reporting SBR Strategic Business Reporting See the ACCA map
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What it is: IAS 1 sets out what goes in a full set of financial statements and how they are laid out. From 1 January 2027 it is replaced by IFRS 18, which mainly changes the statement of profit or loss.
The key idea: every company produces the same set of statements, with comparatives, classified in the same way, so users can compare them.
Example. A bank loan repayable in 5 years is a non-current liability. The part repayable within the next 12 months is shown as current.
Key words
- Complete set of financial statements
- Statement of financial position, statement of profit or loss and OCI, statement of changes in equity, statement of cash flows, notes, and comparatives.Example: A plc’s annual report includes all five, with last year alongside.
- Current asset
- Expected to be realised within 12 months or the normal operating cycle, held for trading, or cash.Example: Inventory, trade receivables, cash.
- Other comprehensive income (OCI)
- Gains and losses that IFRS says go outside profit or loss.Example: A revaluation gain on property under IAS 16.
- Reclassification (recycling)
- Moving an OCI gain or loss into profit or loss in a later year.Example: Gains on debt instruments at fair value through OCI, when they are sold.
- Operating profit (IFRS 18)
- A new required subtotal: profit from the operating category, before investing and financing items and tax.Example: Revenue less cost of sales, distribution costs and administrative expenses.
Learn
A complete set of financial statements (IAS 1)
- Statement of financial position
- Statement of profit or loss and other comprehensive income (one statement, or two: P/L then OCI)
- Statement of changes in equity
- Statement of cash flows (IAS 7)
- Notes, including material accounting policy information
- Comparative information for the previous period
General features
| Feature | What it means |
|---|---|
| Fair presentation | Faithfully represent transactions, applying IFRS (with extra disclosure if needed). |
| Going concern | Prepare on a going concern basis unless management intends or has no realistic alternative but to liquidate or stop trading. |
| Accruals | Record income and expenses when they happen, not when cash moves (except the cash flow statement). |
| Materiality and aggregation | Present material classes of items separately; immaterial items can be combined. |
| Offsetting | Don’t offset assets and liabilities, or income and expenses, unless a standard requires or permits it. |
| Frequency | At least annually. |
| Comparatives | Show the previous period’s figures. |
| Consistency | Keep the same presentation and classification from one period to the next. |
Current or non-current?
An asset is current if it is expected to be realised within 12 months or the normal operating cycle, is held for trading, or is cash. A liability is current if it is due to be settled within 12 months or the operating cycle, or held for trading, or the company has no right at the year end to defer settlement for at least 12 months. Everything else is non-current.
Other comprehensive income
| OCI item | Reclassified to P/L later? |
|---|---|
| Revaluation surplus (IAS 16, IAS 38) | No: transferred to retained earnings instead |
| Remeasurements of defined benefit pension plans (IAS 19) | No |
| Equity investments at fair value through OCI (IFRS 9) | No |
| Debt instruments at fair value through OCI (IFRS 9) | Yes, when derecognised |
| Cash flow hedges (effective part) | Yes |
| Exchange differences on translating foreign operations (IAS 21) | Yes, on disposal |
Expenses are analysed either by nature (raw materials, staff costs, depreciation) or by function (cost of sales, distribution, administrative).
IFRS 18: what changes from 1 January 2027
IFRS 18 replaces IAS 1. The statement of financial position and statement of changes in equity barely change. Many general requirements move into IFRS 18 or into IAS 8, which is renamed Basis of Preparation of Financial Statements. The big change is the statement of profit or loss:
| IFRS 18 category | Typical items (general company) |
|---|---|
| Operating | Revenue, cost of sales, distribution and administrative expenses, impairment of receivables. The default category. |
| Investing | Share of profit of associates and joint ventures, dividends and interest received on investments, income from cash and cash equivalents. |
| Financing | Interest expense on loans and bonds, interest from unwinding discounts on liabilities such as provisions and leases. |
| Income taxes | Tax expense. |
| Discontinued operations | As before (IFRS 5). |
Two new required subtotals: operating profit, and profit before financing and income taxes.
- Management-defined performance measures (MPMs), such as “adjusted operating profit”, must be explained in one note and reconciled to the nearest IFRS subtotal.
- Stronger rules on aggregation and disaggregation: avoid vague labels such as “other expenses” for large amounts.
- IAS 7 changes too: the indirect method starts from operating profit, and most companies must classify interest and dividends received as investing, and interest and dividends paid as financing.
Watch it explained
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Worked example
Extracts from a company’s trial balance (£000): revenue 900, cost of sales 520, distribution costs 80, administrative expenses 110, share of profit of associate 25, interest on bank loan 30, income tax 40. Under IFRS 18:
| Statement of profit or loss | £000 |
|---|---|
| Revenue | 900 |
| Cost of sales | (520) |
| Gross profit | 380 |
| Distribution costs | (80) |
| Administrative expenses | (110) |
| Operating profit | 190 |
| Share of profit of associate (investing) | 25 |
| Profit before financing and income taxes | 215 |
| Interest on bank loan (financing) | (30) |
| Profit before tax | 185 |
| Income tax | (40) |
| Profit for the year | 145 |
Under IAS 1, the same figures would show a profit before tax of 185, but the “operating profit” and “profit before financing and income taxes” subtotals were not required.
Practice questions
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