IFRS 18 replaces IAS 1 for the statement of profit or loss, and its headline change is structure. Every item of income and expense now has to sit in one of five categories: operating, investing, financing, income taxes and discontinued operations. That sounds like filing until the same kind of item lands in different places for different entities.
Why five categories change the conversation
Under IAS 1 companies had latitude over the shape of the income statement, and IAS 1 did not prescribe a uniform operating profit subtotal, so its contents varied between preparers. IFRS 18 defines the categories, requires operating profit and adds a subtotal for profit before financing and income taxes. Recognition and measurement do not change, so profit itself does not move. What changes is where each amount sits, and therefore what the subtotals contain.
The category most people misread
Operating is a residual. It is not a list of operating items; it is whatever is left once the other categories have taken what belongs to them. That makes the investing and financing rules the real work, and it is why the assessment of an entity’s main business activities matters so much. Whether an entity invests in assets or provides financing to customers as a main business activity is a matter of fact rather than choice, and the answer can move interest and similar income between categories.
Where a policy choice appears
For an entity that finances customers as a main business activity, the standard offers linked accounting policy choices for some income and expenses. Those choices affect what reaches operating profit and whether one of the required subtotals is presented at all, so they need to be understood as a pair rather than one at a time.
What the lesson walks through
The lesson builds a full statement for one small company, from revenue through each category to profit for the period, and sets a financing entity beside it to show the choice in action. It also separates two deductions students routinely confuse.
Open the lesson at Amatle Institute and work through the statement yourself before your first IFRS 18 reporting period arrives.
Questions about this topic
What are the five categories in IFRS 18?
Operating, investing, financing, income taxes and discontinued operations. Every item of income and expense in profit or loss is classified into one of them.
Does IFRS 18 change how much profit a company reports?
No. IFRS 18 changes presentation, not recognition or measurement, so total profit does not move. What changes is where each amount sits and what the subtotals contain.
Is the operating category a list of operating items?
No. Operating is a residual category. It holds income and expenses that are not classified in investing, financing, income taxes or discontinued operations.
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IFRS and SAM, one requirement at a time
Each week you get the Institute's new articles: one requirement of IFRS 17, IFRS 9, IFRS 15, IFRS 18 or SAM, worked on a South African case. You start with the free IFRS 18 readiness checklist, ten areas to work through before IFRS 18 takes effect, each with its paragraph reference.