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IFRS 18: Enhancing transparency and comparability of financial statements
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School of Business |
Bachelor's thesis
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en
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30
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This thesis examines the International Accounting Standards Board’s new IFRS 18 standard, which will replace IAS 1 on January 1, 2027, and evaluates how its requirements respond to investor needs. Specifically, it investigates how the standard alters firms’ mandatory financial disclosures and the extent to which these changes enhance the transparency and comparability of financial statements.
To address these questions, the study conducts a comprehensive literature review, drawing on both prior academic research and the IASB’s own material. Key themes include the usefulness of operating profit and EBITDA as subtotals, disaggregation in financial statements and the role of alternative performance measures. This thesis then maps these insights against the changes introduced by IFRS 18, such as the required operating profit subtotal, the classification of income and expenses into operating, investing, and financing categories, the disclosure requirements for Management-Defined Performance Measures and improved principles for grouping of financial information.
The main findings suggest that IFRS 18’s standardized subtotals and categorization requirements are likely to improve cross-company comparability and better align with investors’ preferences for clear, decision-useful metrics. In particular, mandating an operating profit subtotal reinforces evidence of its stronger predictive power for future returns compared to gross or net profit, while the consolidation of similar line items and clearer disaggregation principles promise greater transparency. Furthermore, the formalized disclosure requirements for Management-Defined Performance measures are expected to limit opportunistic reporting of alternative performance measures and bring valuable information for investors. Ultimately, while these enhancements appear broadly supported by both literature and investor feedback, their real-world impact can only be determined once the standard is implemented and applied in practice.