Presentation and Disclosure in Financial Statements
Treatment under IFRS
IFRS 18 replaces IAS 1 and applies to reporting periods beginning on or after 1 January 2027 (earlier application permitted). It restructures the income statement into defined categories with two new mandatory subtotals, requires disclosure of management-defined performance measures (MPMs), and sets out principles for aggregation and disaggregation. It is a presentation and disclosure standard only – recognition, measurement and the bottom-line result are unchanged.
- Five categories in the income statement: operating, investing, financing, income taxes and discontinued operations.
- Two new mandatory subtotals: operating profit and profit before financing and income taxes.
- Management-defined performance measures (MPMs): disclosed in a single note with a reconciliation to the most comparable IFRS subtotal.
- Principles for aggregation and disaggregation, including meaningful line-item labels (avoiding uninformative "other" items).
- Replaces IAS 1; mandatory for periods beginning on or after 1 January 2027 (earlier application permitted). EU endorsement follows in a separate process.
Treatment under German GAAP (HGB)
German GAAP governs presentation through fixed statutory formats (balance sheet § 266, income statement § 275 using the total-cost or cost-of-sales method) with general principles in § 265. There is no mandatory "operating profit" subtotal and no MPM regime.
- § 266 HGB: statutory balance-sheet format.
- § 275 HGB: income statement in vertical form, either the total-cost or the cost-of-sales method; prescribed line items down to the net result.
- § 265 HGB: general presentation principles (consistency, prior-year comparatives, limited subdivision/aggregation of items).
- Since BilRUG there is no separate "result of ordinary activities"; an operating-profit subtotal is not required.
- Alternative measures, if shown, appear in the management report (§ 289 HGB), outside the financial statements and without a prescribed reconciliation.
Key differences
- IFRS 18 requires the operating-profit and profit-before-financing-and-income-taxes subtotals; HGB has no comparable mandatory subtotal.
- IFRS 18 regulates management-defined performance measures (MPMs) including a reconciliation in the notes; HGB has no equivalent rule.
- IFRS 18 is principle-based (categories plus aggregation/disaggregation principles); HGB uses fixed formats (§ 266, § 275).
- Presentation and disclosure differences only: recognition, measurement and the net result are unaffected.
Example
Worked example
Note: A topic-appropriate comparison without journal entries. IFRS 18 is a presentation and disclosure standard only – recognition, measurement and the bottom-line result do not change. IFRS 18 replaces IAS 1 and is mandatory for reporting periods beginning on or after 1 January 2027 (earlier application permitted); EU endorsement follows in a separate process. Assumptions for the illustrative income statement (Steps 3–4): revenue €1,000,000, operating expenses €800,000, investing result €30,000, financing costs €50,000, income-tax rate 30% (tax €54,000), one-off restructuring expenses €40,000 (MPM reconciliation). The mapping to the HGB § 275 line items is simplified. All amounts in euros.
Step 1 – What IFRS 18 changes (three building blocks)
| Building block | Content |
|---|---|
| 1. Structured income statement | five categories and two new mandatory subtotals |
| 2. Management-defined performance measures (MPMs) | disclosure and reconciliation in a single note |
| 3. Aggregation and disaggregation | principles for grouping/splitting items and meaningful line-item labels |
Step 2 – The five income-statement categories
| Category | Content | Examples |
|---|---|---|
| Operating | residual category: everything not falling into the others | revenue, materials, payroll, depreciation |
| Investing | assets that generate returns largely independently | associates (equity method), investment property, interest/dividends on investments |
| Financing | income/expenses from raising finance | interest on bank loans and bonds, unwinding of discounts |
| Income taxes | tax income/expense under IAS 12 | current and deferred tax |
| Discontinued operations | result under IFRS 5 | a discontinued line of business |
For entities with a relevant main business activity (e.g. banks, investment entities) certain items are reclassified into the operating category – for instance interest income from customer lending.
Step 3 – New mandatory subtotals (illustrative income statement)
IFRS 18 requires two subtotals that HGB does not have: operating profit and profit before financing and income taxes. The net result is the same.
| Item | IFRS 18 | HGB (§ 275) |
|---|---|---|
| Revenue | 1,000,000 | 1,000,000 |
| Operating expenses | −800,000 | −800,000 |
| Operating profit | 200,000 | (not required) |
| Investing result (e.g. investments) | 30,000 | 30,000 |
| Profit before financing and income taxes | 230,000 | (not required) |
| Financing costs (interest) | −50,000 | −50,000 |
| Income taxes | −54,000 | −54,000 |
| Profit for the year | 126,000 | 126,000 |
Both systems arrive at the same profit for the year (€126,000) – but IFRS 18 surfaces operating profit and profit before financing and income taxes as mandatory subtotals. The mapping to the HGB line items is simplified here.
Step 4 – Management-defined performance measures (MPMs)
An MPM is a management-defined measure of performance that is communicated publicly, conveys management's view of an aspect of performance and is not already required by IFRS (e.g. "adjusted operating profit").
| Reconciliation | Amount |
|---|---|
| Operating profit (IFRS subtotal) | 200,000 |
| + one-off restructuring expenses | 40,000 |
| Adjusted operating profit (MPM) | 240,000 |
| Feature | IFRS 18 | HGB |
|---|---|---|
| Rule for adjusted measures | yes – mandatory reconciliation in the notes | none |
| Where disclosed | a note within the audited financial statements | possibly the management report, outside the statements |
| Reconciliation incl. tax/NCI effect | required for each reconciling item | not envisaged |
Step 5 – Aggregation and disaggregation
| Principle | IFRS 18 | HGB |
|---|---|---|
| Group/split items | by shared vs non-shared characteristics | fixed format (§ 266, § 275) |
| Material, dissimilar items | presented separately | limited extension possible (§ 265 (5)) |
| Line-item labels | meaningful; avoid uninformative "other" buckets | prescribed line-item names |
| Division of roles | primary statements = overview, notes = detail | balance sheet/income statement plus notes (§ 284 ff.) |
Key takeaway
IFRS 18 replaces IAS 1 and is purely a presentation and disclosure standard: it changes neither recognition nor measurement nor the net result. Its effect lies in the comparability of the income statement (mandatory operating profit and profit before financing and income taxes), the transparency of adjusted measures (MPM reconciliation in the audited notes) and clear aggregation rules. HGB, by contrast, keeps fixed formats (§ 266, § 275) with no mandatory operating-profit subtotal and no MPM regime. Mandatory from 1 January 2027 (earlier application permitted); EU endorsement is proceeding in a separate process.