IFRS 18 replaces IAS 1: what Pakistani companies must restate, and when

IFRS 18, Presentation and Disclosure in Financial Statements, replaces IAS 1. The IASB issued it in April 2024 and it applies to annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. In Pakistan a standard takes effect for a class of company once it is notified by the Securities and Exchange Commission of Pakistan, so the first affected year end here depends on that notification. Companies reporting under IFRS as issued by the IASB, including subsidiaries that report into foreign parents, should plan around the 2027 date.

What stays the same. IFRS 18 is a presentation standard. It does not change how you measure assets, liabilities, income or expenses. Recognition and measurement stay with the standards you already apply, and much of IAS 1 is carried forward into IFRS 18 with little or no change. The statement of financial position, the statement of changes in equity and the requirements for a complete set of financial statements remain familiar.

Three changes that matter. First, the statement of profit or loss gains a defined structure. Income and expenses are classified into operating, investing and financing categories, and two subtotals become mandatory: operating profit, and profit before financing and income taxes. Operating profit is presented by convention today, and companies define it differently, which makes comparison between them hard. Under IFRS 18 the subtotal is defined for everyone.

Second, management-defined performance measures move inside the financial statements. A subtotal of income and expenses that a company uses in public communications to convey management's view of performance must be disclosed in a single note, reconciled to the most directly comparable subtotal required by IFRS, with an explanation of how it is calculated and why management considers it useful. Measures that used to appear only in the directors' report or an investor deck may now need that note.

Third, IFRS 18 sets out principles for aggregation and disaggregation. Items are grouped when they share characteristics and separated when they do not, labels have to be meaningful, and a line simply described as other needs more explanation than it usually gets today. In practice this is the change that most often forces a rebuild of how the trial balance maps to the face of the statements.

What has to be restated. IFRS 18 is applied retrospectively. The comparative period in your first IFRS 18 financial statements has to be presented on the new basis, and the standard requires a reconciliation showing, for each line item in the restated comparative statement of profit or loss, the amounts previously reported under IAS 1. For a company with a 31 December 2027 year end, the comparative year is 2026, which is running now. For a 30 June year end, the comparative year also begins in 2026.

That is the practical point for finance teams. The entries you are posting this year are the comparatives you will have to re-present. Capturing enough analysis now, in the ledger rather than in a spreadsheet afterwards, costs far less than reconstructing it once the year has closed and the people who made the entries have moved on.

What to do in the next few months. Map your current income statement lines to the three new categories and note where the mapping is ambiguous, particularly for the share of profit of associates, foreign exchange differences, and groups whose main business activity is investing or financing. List every performance measure the company publishes and decide which ones meet the definition. Break out the balances sitting in other income and other expenses. Then speak to your auditor early, because the restated comparatives and the reconciliation are audited.

Related amendments to IAS 7 change the starting point of the indirect cash flow statement to operating profit and remove some classification choices for interest and dividends, so the cash flow statement is affected as well.

This article is general information, not advice. Contact us to discuss your situation.