Have your say on whether IFRS 18 should apply to Australian not-for-profit entities and superannuation entities

Over the past year in Corporate Reporting Insights, we have been showcasing some of the practical complexities of applying IFRS 18 Presentation and Disclosure in Financial Statements, the new financial statements presentation standard that replaces IAS 1 Presentation of Financial Statements. Some of the key changes introduced by IFRS 18 for Tier 1 general purpose financial statements include:

Does IFRS 18 apply to not-for-profit (NFP) entities and superannuation entities?

The Australian equivalent standard to IFRS 18, AASB 18 Presentation and Disclosure in Financial Statements, applies to for-profit entities for annual periods beginning on or after 1 January 2027. However, the Australian Accounting Standards Board (AASB) has deferred the start date by one year for:

  • Not-for-profit private sector entities
  • Not-for-profit public sector entities
  • Superannuation entities applying AASB 1056 Superannuation Entities.

The deferral was intended to give the AASB time to assess whether, and how, AASB 18 should apply to these entities.

Proposed changes (carve-outs) for public sector NFPs and superannuation entities

After conducting outreach with NFP and superannuation stakeholders, the AASB decided to propose amendments to the Tier 1 AASB 18 requirements, but only for NFP public sector entities and superannuation entities. The changes will significantly reduce the additional reporting burden of AASB 18, and are discussed in more detail below.

Changes proposed for public sector NFPs and superannuation entities

ED 338 Application of AASB 18 and AASB 107 by Superannuation and Not-for-Profit Entities and Operating Cash Flow Reconciliation proposes the following main carve-outs for NFPs and superannuation entities (extracted from ED 338, pages 4 and 5):

New AASB 18 requirements

Proposed amendments

 

NFP public sector entities

Superannuation entities

Presentation in the statement of profit or loss

Requires an entity to:

  • Categorise income and expenses into operating, investing and financing categories
  • Present subtotals for ‘operating profit or loss’ and ‘profit or loss before financing and income taxes’.

Accounting policy choice to elect not to categorise income and expense into the operating, investing and financing categories, and/or not to present the two required subtotals. 

Continue presenting the statement of profit or loss in accordance with AASB 1056.

Don’t apply requirements to categorise income and expenses into the operating, investing and financing categories, or to present the two required subtotals.

Requires an entity to classify and present operating-category expenses in line items in a way that provides the most useful structured summary of its expenses, considering the matters set out in AASB 18.B80, using one or both characteristics:

  1. The nature of expenses, or
  2. The function of the expenses within the entity.

Accounting policy choice to elect not to apply these requirements.

Instead, they can present an analysis of expenses using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant, consistent with AASB 101.99.

Classify and present expenses in accordance with AASB 1056.
Don’t apply AASB 18 requirements.

Management-defined performance measures (MPMs)

Requires an entity to disclose in a single note information about all measures that meet the definition of ‘management-defined performance measures’ (MPMs).

Accounting policy choice to elect not to disclose information about MPMs.

No proposed modification. Targeted outreach indicated that superannuation entities do not typically disclose subtotals of income and expenses in public communications that would meet the MPMs definition.

Presentation in the statement of cash flows

AASB 18 amended AASB 107 so that entities that do not invest in assets or provide financing to customers as a main business activity would no longer be able to classify dividend and interest cash flows as operating cash flows.

AASB 107.34B–34D require an entity with specified main business activities to classify each of dividends received, interest paid and interest received in a single cash flow category, by:

  1. Classifying the cash flows in the category associated with their income statement category, or
  2. Making an accounting policy choice regarding the appropriate single cash flow category if the associated income or expenses are recognised in more than one income statement category.

Retain the current accounting policy choice to permit NFP public sector entities to elect to classify dividends received and interest paid and received as operating cash flows.

Retain the current accounting policy choice to permit superannuation entities to elect to classify dividends received and interest paid and received as operating cash flows.

AASB 18 amended paragraphs 18(b) and 20 of AASB 107 to require entities to use the ‘operating profit or loss’ subtotal presented in the statement of profit or loss, instead of the ‘profit or loss’ total, as the starting point for the indirect method of reporting cash flows from operating activities.

Permit NFP public sector entities that do not present the ‘operating profit or loss’ subtotal to continue using the ‘profit or loss’ total as the starting point for the indirect method.

Permit superannuation entities to continue using the ‘profit or loss’ total as the starting point for the indirect method.

When will the changes apply?

In line with the one-year deferral date of AASB 18 for NFP private and public sector entities and superannuation entities, the proposed amendments, if approved, will apply to annual periods beginning on or after 1 January 2028.

Why are no major changes proposed for NFP private sector entities?

The AASB noted that limited feedback received from stakeholders in targeted outreach with respect to NFP private sector entities and universities did not provide sufficient justification to depart from AASB 18 or the revised AASB 107.

The AASB did, however, consider stakeholder comments that users of NFP entity financial statements might focus more on the entity’s operations or main activities, than on its profitability. The AASB is, therefore, proposing to add NFP-specific guidance to AASB 18 regarding the classification of expenses in the operating category. This applies to both private and public sector NFPs.

Proposed paragraph AusB80.1 requires a NFP private sector or NFP public sector entity applying AASB 18.78 to consider what line items provide the most useful information to users of financial statements about the entity’s ‘operations or main activities’. This is a broader assessment than merely considering ‘the main components or drivers of the entity’s profitability’ required by AASB 18.B80.

At the time of the AASB’s initial outreach, many private sector NFPs may not have had a chance to fully assess the impacts of the AASB 18, particularly with respect to classifying expenses in the statement of profit or loss. Therefore, as part of its proposed changes, the AASB is seeking specific feedback in questions 12-15 on the impacts for private sector NFPs, and we strongly encourage all affected entities preparing Tier 1 financial statements to respond, particularly on how they see the expense categorisation may impact them.

More information

To inform your responses to the ED 338 proposals, NFPs may wish to consider our previous articles on the complexities of AASB 18 and the implementation challenges, including significant changes to systems and processes required to facilitate the new income and expense classification rules.

Comments due

Comments on ED 338 to the AASB close on 27 February 2026. We encourage all NFPs, in particular, to have their say.