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New global accounting standard enhances investor analysis capabilities

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Global Accounting Standard Launch

TLDR:

  • New IFRS 18 standard launched to improve financial performance reporting
  • Companies required to provide defined subtotals for operating profit, among other changes

New rules unveiled by the International Accounting Standards Board (IASB) aim to enhance companies’ financial performance reporting and provide investors with a better basis for analysis and comparison of firms. The new standard, IFRS 18, introduces operating, investing, and financing categories for income and expenses, with mandatory subtotals for operating profit, depreciation, amortization, and impairment on goodwill. Companies will need to define these subtotals, providing a consistent structure for income statements. Banks and insurers will also be required to include interest in their operating profit calculations. The IASB’s chair, Andreas Barckow, called this reform the most significant change to financial performance presentation since the introduction of IFRS accounting standards, providing investors with improved information and anchor points for analysis.

Key Elements of the Article:

New rules have been unveiled to improve companies’ financial performance reporting and give investors a better basis for analysing and comparing firms. The new standard, known as IFRS 18, introduces operating, investing and financing categories for income and expenses. It will take effect for annual reporting periods beginning on or after 1 January 2027. The move by the International Accounting Standards Board (IASB) aims to improve the structure of companies’ income statements. It will require all companies to provide and define mandatory subtotals for operating profit, including depreciation, amortisation and impairment on goodwill, and profit before financing and income taxes. Common adjustments, such as for currency fluctuations, can only be included in footnotes to the statement. Banks and insurers will be obliged to include interest – a key part of their business model – in their operating profit. The IASB, which sets the book-keeping rules used by around 50,000 companies across 147 countries (not including the US), said there is currently no specified structure for an income statement, with companies choosing to include their own subtotals. It admitted that while companies often report an operating profit, the way this is calculated varies between firms. IASB chair Andreas Barckow called the reform “the most significant change to companies’ presentation of financial performance since IFRS accounting standards were introduced”. He added: “It will give investors better information about companies’ financial performance and consistent anchor points for their analysis.”


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