IFRS 18 is beginning to move from written requirements into real-world reporting practice.

Companies have already begun to early adopt the new standard. And now we are entering an important new phase: IFRS 18 financial information subject to independent auditor review is beginning to emerge.

Earlier examples included voluntary disclosures and preliminary financial information. These remain useful, but they are not necessarily comparable with financial information that has been subject to an auditor’s review.

At IFRS-LABO, we have been tracking IFRS 18 early adoption cases globally and analysing the underlying financial statements and corporate disclosures.

We have now organised the results into the IFRS 18 Early Adoption Database.

IFRS 18 Early Adoption Database

The database goes beyond a simple list of companies that have announced early adoption.

For each company, we provide basic information such as country, principal business and company size, together with key attributes of the IFRS 18 financial information itself, including:

• whether the reporting period is annual or interim;

• whether the financial information is audited, reviewed, or not subject to external assurance;

• management-defined performance measures (MPMs);

• whether an MPM reconciliation is provided;

• how foreign exchange differences are disaggregated;

• function-by-nature expense disclosures; and

• other notable implementation features.

In addition to these structured data points, we review the underlying financial information and provide a short summary of features that we consider particularly relevant to IFRS 18 implementation.

Explore the IFRS 18 Early Adoption Database → https://ifrs-labo.com/ifrs18

The database also provides direct links to the original financial statements and source documents for each case, so readers who want to examine any of the disclosures discussed in this article in greater detail can access the primary sources through the database.

Behind the database

Building this database was not as simple as asking AI to identify IFRS 18 early adopters.

There were particular challenges in identifying new cases, locating and assessing the relevant primary-source documents, and analysing accounting practices for which very little real-world precedent yet exists. AI alone was not enough to build this database.

We will discuss how we approached this challenge separately in a future article.

For now, let’s focus on what the actual IFRS 18 disclosures are telling us.

First observation: auditor review makes a difference

One of the strongest impressions from our research so far has been the difference between financial information with and without auditor involvement.

This distinction requires some care.

Unaudited financial information is not necessarily deficient. Earnings releases, voluntary disclosures and interim financial statements may serve different purposes and be subject to different disclosure requirements.

Nevertheless, when early adoption cases are used as benchmarks for IFRS 18 implementation, the nature of the underlying document matters.

In the cases we reviewed, financial information subject to auditor review generally provides a more complete picture of IFRS 18 implementation.

The difference is particularly noticeable in areas such as MPM reconciliations.

For this reason, the IFRS 18 Early Adoption Database separately identifies the assurance status of each case as Audit, Review or No external assurance.

Among the cases currently available, Kao, Kagome and Vodafone Qatar provide particularly useful examples because their IFRS 18 financial information has been subject to auditor review.

And once we look inside those disclosures, some interesting differences emerge.

1. MPMs: real-world implementation is beginning to emerge

Management-defined performance measures are naturally one of the most closely watched areas of IFRS 18.

Most of the early adopters identified in our research use measures that are treated as MPMs.

What differs considerably is the level of supporting disclosure.

Some unaudited early adoption disclosures identify an MPM without providing the same level of reconciliation information seen in reviewed financial information.

By contrast, the reviewed cases provide much more useful evidence of how the new requirements may actually operate in practice.

Among them, Vodafone Qatar and Kao broadly illustrate the type of MPM reconciliation many practitioners might have expected from reading IFRS 18.

Kagome is different.

Kagome: an MPM reconciliation starting from gross profit

Kagome provides one of the most distinctive IFRS 18 MPM examples we have identified so far.

Kagome uses a performance measure structured broadly as follows:

Gross profit
– Selling, general and administrative expenses
= Core operating income

The resulting MPM reconciliation therefore effectively starts from gross profit.

At first sight, this may look unusual.

When practitioners think about an IFRS 18 MPM reconciliation, a natural model is to start with an IFRS-defined subtotal such as operating profit and reconcile that subtotal to an adjusted management measure.

Kagome demonstrates that this need not necessarily be the only possible structure.

Based on our reading of IFRS 18, this type of approach appears possible under the requirements of the standard.

And that could have important practical implications.

Could existing intermediate profit measures survive IFRS 18?

Many companies have traditionally managed and communicated performance using several levels of profit.

A company might, for example, focus internally on gross profit, an operating-type measure and other intermediate profit measures.

For such companies, one practical question arising from IFRS 18 implementation is whether existing management measures need to be abandoned or substantially redesigned.

Kagome’s example suggests another possibility.

An existing intermediate profit measure may, depending on the circumstances, be retained as an MPM, with the reconciliation designed around that measure.

If this approach proves applicable more broadly, it could provide useful flexibility for companies seeking to preserve management measures already embedded in internal reporting and external communication.

In that sense, Kagome’s disclosure is more than simply an unusual MPM example.

It may provide an early real-world indication that IFRS 18 allows greater flexibility in preserving existing performance measures than might initially be assumed.

But how are the tax and NCI effects calculated?

That flexibility immediately creates another practical question.

IFRS 18 requires an MPM reconciliation to disclose the income tax effect and the effect on non-controlling interests of the reconciling items.

Once a broad expense category such as SG&A becomes part of the reconciliation, those calculations could become complex.

Consider a multinational group.

SG&A may arise across numerous subsidiaries in different jurisdictions, subject to different tax rates and, in some cases, different NCI ownership percentages.

One possible approach would be to identify the relevant SG&A by group company, apply the applicable statutory tax rates and calculate the corresponding NCI effects based on ownership percentages.

But how granular does the calculation need to become?

For example, does the calculation reflect more detailed tax-effect considerations, including recoverability, at the individual adjustment level?

The published disclosure does not allow us to determine Kagome’s entire internal calculation process.

Some form of practical or simplified calculation methodology may therefore be being used.

And this is where the Kagome example becomes particularly interesting.

This MPM appears in reviewed financial information

Kagome’s financial information containing this MPM structure and reconciliation was subject to an independent auditor’s review.

This should not be overstated.

A review conclusion is not an audit opinion, nor does it mean that the auditor has separately endorsed every individual accounting judgement or internal calculation methodology used by management.

Nevertheless, from an implementation perspective, the fact itself is significant.

This is not merely a theoretical interpretation of IFRS 18.

An MPM structured in this way, together with the required reconciliation, has actually appeared in IFRS 18 financial information that has gone through the auditor review process.

For companies considering how to preserve existing intermediate profit measures under IFRS 18, that makes Kagome an important case to study.

The example suggests that there may be meaningful flexibility in designing MPMs.

The potential trade-off is the practical complexity created by the corresponding tax and NCI calculations.

And from a preparer’s perspective, one question remains particularly interesting:

How is this reconciliation actually calculated in practice?

2. Foreign exchange differences: this looks like a practical implementation requirement

Foreign exchange differences provide a different lesson.

Across the early adoption cases reviewed by IFRS-LABO, companies generally disaggregate foreign exchange differences where FX effects arise from transactions belonging to different IFRS 18 categories.

There are cases where companies indicate that further disaggregation is not necessary.

However, the cases we have seen appear to reflect the underlying business structure — situations where significant FX effects do not arise across multiple activities — rather than a general approach of leaving foreign exchange differences aggregated.

The emerging practical message is therefore relatively clear.

For many companies, FX disaggregation is likely to become a core IFRS 18 implementation requirement.

And this may be more important than it first appears.

This is also a systems issue

The accounting principle itself is relatively straightforward.

Foreign exchange differences need to be classified consistently with the income and expenses arising from the underlying items.

In practice, this means that a company may need to distinguish FX effects associated with operating, investing and financing activities.

The real question is how that information is captured.

If foreign exchange gains and losses arising from different activities have historically been accumulated in the same accounts, attempting to separate them only when preparing the IFRS 18 financial statements may require the finance team to trace transactions and reconstruct the underlying sources of FX movements accumulated throughout the period.

For a company with significant transaction volumes, that exercise could become substantial.

The practical lesson from the early adoption cases is therefore:

Do not treat FX disaggregation merely as a year-end financial statement presentation issue.

Companies preparing for IFRS 18 should consider whether their chart of accounts, sub-accounts, transaction attributes or other system data can identify foreign exchange differences according to the underlying activity from the beginning of the reporting period.

Otherwise, a relatively simple-looking presentation requirement could create a significant manual workload at the reporting date.

3. Function-by-nature disclosures: the important examples are still to come

The third area we are tracking is the disclosure of expenses by nature for companies that present operating expenses by function.

This could become one of the more operationally demanding aspects of IFRS 18, particularly where the necessary nature-based information is not readily available within existing reporting systems.

Interestingly, the current interim disclosures from Kao and Kagome already provide a glimpse of how this might work in practice.

Both companies present expenses by function in the statement of profit or loss, including cost of sales and selling, general and administrative expenses (SG&A). They then provide additional nature-based information for SG&A in the notes.

For example, the SG&A disclosures include items such as employee-related costs, depreciation and amortisation, as well as other nature-based expense categories.

However, neither company provides an equivalent nature-based breakdown of cost of sales in its current interim financial information.

This is an interesting observation, but it is too early to draw a conclusion from it.

The additional nature-based expense disclosures introduced by IFRS 18 are principally relevant to annual financial statements and are not necessarily required in the same form in interim reporting. Accordingly, the current interim disclosures do not tell us whether Kao and Kagome intend to follow the same approach in their annual IFRS 18 financial statements.

Will they continue to provide nature-based information primarily for SG&A, or will additional information relating to cost of sales also appear at year-end?

We do not yet know.

This is why the first annual IFRS 18 financial statements will be particularly important.

They should provide much better evidence of how companies interpret and implement the new expense disclosure requirements in practice.

And, as with FX disaggregation, this is not merely a disclosure question.

Producing the required information may involve mapping expenses across functions, expense natures, entities and reporting systems. Depending on a company’s existing accounting structure, this could become a significant data and systems exercise.

For now, therefore, the conclusion is simple:

Kao and Kagome give us an early preview — but the full picture will only emerge with the annual financial statements.

IFRS-LABO will continue to track these developments.

What the early adoption cases are telling us

The population of IFRS 18 early adopters is still small.

It is far too early to identify established market practice.

Nevertheless, comparing the actual disclosures already provides some useful implementation lessons.

First, the nature of the financial information matters. Financial information subject to auditor review generally provides a more complete view of IFRS 18 implementation than preliminary or unaudited disclosures. When using early adopters as benchmarks, the assurance status of the underlying information is therefore an important attribute.

Second, MPMs may offer more flexibility than expected. Kagome’s unusual gross-profit-based reconciliation suggests that existing intermediate profit measures may potentially be preserved within the IFRS 18 framework. But that flexibility can create practical questions, particularly around the calculation of tax and NCI effects.

Third, some apparently presentational requirements are really data and systems issues. FX disaggregation is a good example. The early cases suggest that disaggregation will be necessary for many companies, and waiting until the reporting date to determine where FX differences originated could create a significant manual burden.

For function-by-nature disclosures, meanwhile, the evidence is not yet available. The first annual IFRS 18 financial statements should tell us considerably more.

These are exactly the types of issues that are difficult to identify by reading the standard alone.

They become visible when actual financial statements are compared across companies.

That is one of the reasons we built the IFRS 18 Early Adoption Database.

More to come

These are exactly the kinds of implementation issues that are difficult to see from the standard alone. They become visible when actual financial statements are compared across companies.

That is why we built the IFRS 18 Early Adoption Database.

We will continue updating the database as new cases emerge, with particular attention to the first annual IFRS 18 financial statements.

Explore the IFRS 18 Early Adoption Database → https://ifrs-labo.com/ifrs18

Disclaimer

This article and the IFRS 18 Early Adoption Database are provided for informational purposes only and do not constitute professional advice.

The analysis is based on publicly available information as of the date of publication and reflects IFRS-LABO’s interpretation. Readers should refer to the original financial statements and applicable IFRS Accounting Standards when making accounting or reporting decisions.

© IFRS LABO LLC. All rights reserved.