Foreign exchange differences
IFRS 18 ‘Presentation and Disclosure in Financial Statements’ (IFRS 18 or the Standard) becomes mandatorily effective for periods beginning on or after 1 January 2027, with earlier application permitted. It requires retrospective restatement of prior period comparative figures. The International Accounting Standards Board (IASB) introduced IFRS 18 following investor demand for better information and reporting on entities’ financial performance. The Standard replaces IAS 1 ‘Presentation of Financial Statements’ and sets out the requirements for the presentation of information in the financial statements and disclosure in the notes, with the aim of improving comparability across entities and assisting investors in analysing company performance.
Our ‘Insights into IFRS 18’ series explains the new requirements of IFRS 18, highlighting some areas of the Standard that we believe will be challenging to apply in practice. Our articles also aim to help users of IFRS financial statements to understand how financial statements will change when applying the new Standard.
As we discussed in our article ‘Insights into IFRS 18 – Classification of income and expenses in the statement of profit or loss’, one of the most significant changes is in the classification of income and expenses. IFRS 18 introduces a principles-based framework that requires entities to classify items based on the nature of the underlying asset, liability, transaction, or event – not the nature of the income or expense itself. This has specific impacts on gains and losses that arise due to changes in foreign exchange rates.
This article provides insights into the application of the requirements of IFRS 18 to the classification of income and expenses arising from foreign exchange differences.
