Last reviewed: July 2026.
Profit or loss disclosures should help users understand the entity's financial performance without relying on vague “other” categories or management-adjusted figures. IFRS 18 introduces a defined structure for profit or loss and stronger requirements for aggregation, disaggregation and specified expenses.
IFRS 18 is effective for annual periods beginning on or after 1 January 2027, with earlier application permitted. Before adoption, IAS 1 remains applicable.
IFRS 18 categories
| Category | Purpose | Examples subject to detailed rules |
|---|---|---|
| Operating | Default and main business activities | Revenue, cost of sales and operating expenses |
| Investing | Returns from specified investments | Income from assets generating returns independently |
| Financing | Specified finance-related income and expenses | Interest on financing liabilities |
| Income tax | Tax expense or income | Current and deferred tax |
| Discontinued operations | Results meeting IFRS 5 requirements | Post-tax discontinued results |
Required subtotals
IFRS 18 requires operating profit and profit before financing and income taxes. These subtotals improve comparability and should be reconciled to the underlying ledger mapping.
Material line items
Present material classes of income and expenses separately when necessary for a useful structured summary. Additional detail can be provided in the notes when the face would become cluttered.
Aggregation and disaggregation
Items are aggregated only when they share characteristics. Material items with different nature, function, measurement basis or risk should not be hidden together.
Use the materiality judgement guide.
Operating expenses by nature or function
An entity presents operating expenses in the way that provides the most useful structured summary. A function presentation may include cost of sales, distribution and administration. A nature presentation may include employee benefits, depreciation and materials.
Specified expenses by nature
IFRS 18 requires additional nature information for specified operating expenses when function presentation is used, subject to the detailed requirements. Systems must retain sufficient natural expense data.
Unusual or infrequent items
IFRS does not permit an item to be removed from profit merely because it is unusual. Material items should be separately explained, but remain within the appropriate category and subtotal.
Impairment and write-downs
Material impairment losses, reversals and inventory write-downs should be presented or disclosed clearly. Users need to understand whether they relate to operations, investing or another category under the applicable rules.
Restructuring and provisions
Recognised restructuring expenses should be explained by nature and amount when material. Do not use “exceptional” labels to bypass normal classification.
Gains and losses on disposals
Disposal gains and losses require classification based on the asset and business activity. Gross proceeds are generally not the same as accounting income.
Finance income and expense
Interest, unwinding of discounts and foreign-exchange effects require careful IFRS 18 classification. Entities with financing as a main business activity may apply special rules.
Tax expense
Present income tax separately and provide the required reconciliation and components in the notes. Taxes that are not income taxes require analysis under their relevant nature.
Other comprehensive income
OCI is separate from profit or loss and contains only items required or permitted by IFRS Standards. Items are grouped by whether they may later be reclassified.
Management-defined performance measures
Specified management-defined performance measures used in public communications require a single note explaining the measure, why management uses it, calculation, reconciliation, tax and NCI effects, and changes.
See the financial performance reporting guide.
Worked disclosure example
An entity records a 300,000 CU restructuring expense, 120,000 CU impairment loss and 80,000 CU disposal gain. Rather than combining them in “other expenses,” it classifies them correctly and discloses nature, amount and relevant circumstances.
Comparatives
Apply consistent classifications to comparative periods. IFRS 18 transition requires retrospective comparative information and explanations of changes.
Connection to the statement of financial position
Profit or loss items must reconcile to asset, liability and equity movements. Depreciation links to PPE, provisions to liabilities and tax to current and deferred tax balances.
Use the complete financial statements guide.
Employee benefits and depreciation
When operating expenses are presented by function, IFRS 18 may require specified nature information such as employee benefits, depreciation, amortisation, impairment and inventory write-downs. The note should reconcile to the operating categories used.
Foreign-exchange differences
Foreign-exchange gains and losses follow classification principles based on the related item. Netting material gains and losses can obscure the source and volatility of performance.
Interim and management reporting alignment
Internal management reports and public presentations should use controlled definitions. Differences from IFRS subtotals should be explained so management-defined measures remain consistent across communications.
Disclosure controls
- map every account to an IFRS 18 category;
- retain expense data by nature and function;
- review “other” balances for material items;
- reconcile subtotals to the trial balance;
- control management-defined measures;
- check OCI and reclassification treatment;
- prepare comparative information early.
Common mistakes
- calling items “exceptional” without proper classification;
- netting unrelated income and expenses;
- using broad “other” captions for material amounts;
- failing to disclose specified expenses by nature;
- presenting a management measure without reconciliation;
- confusing operating profit with profit before financing and tax;
- ignoring IFRS 18 comparative preparation.
Related Accounting Support guides
Key takeaway
Useful profit-or-loss disclosure combines the IFRS 18 category structure with material, entity-specific disaggregation. Clear notes should explain significant items without removing them from IFRS profit.
Official references: IFRS 18 Presentation and Disclosure in Financial Statements and IFRS 18 supporting material.