New rules for aggregation, disaggregation and labelling under IFRS 18

As discussed in previous editions of Corporate Reporting Insights, IFRS 18 Presentation and Disclosure in Financial Statements is a new financial statements presentation standard that replaces IAS 1 Presentation of Financial Statements. It is effective for annual periods beginning on or after 1 January 2027 and will result in entities having to classify income and expenses in the statement of profit or loss in one of five categories, with special rules for the investing and financing categories of entities with specified main business activities.

In this regard, it is useful to first consider the guidance in IFRS 18 regarding the roles of the primary financial statements, the notes, and materiality.

What is the role of the primary financial statements and the notes?

The primary financial statements comprise the statement of profit or loss and other comprehensive income, statement of financial position, statement of cash flows and statement of changes in equity.

Whereas the role of the primary financial statements is to provide users with a structured summary of the entity’s assets, liabilities, equity, income, expenses and cash flows, the role of the notes is to provide material information so that users can better understand the line items presented in the primary financial statements.

Primary Financial Statements		Notes
↓		↓
Provides a structured summary		Material information about line items in primary financial statements
↓		↓
Aggregated information		Disaggregated information

What if information is not material?

Some IFRS® Accounting Standards specify information to be included in the primary financial statements or disclosed in the notes. However, IFRS 18 clarifies that an entity need not provide this information if it is not material. This applies even if the standard contains a list of specific requirements, or describes the information as a minimum requirement.

Why aggregate or disaggregate information?

Financial statements result from entities processing large numbers of transactions and other events. For example, an entity may enter into thousands or even millions of transactions with customers. These transactions and other events give rise to assets, liabilities, equity, income, expenses and cash flows. For entities with numerous transactions, it would be impossible to prepare the four primary financial statements without aggregating these transactions into a smaller number of line items. However, additional information may be required to explain these line items in more detail, and that’s where disaggregation comes in.

Principles for aggregation and disaggregation

IFRS 18, paragraph 41, introduces principles to help entities determine how to aggregate line items in the primary financial statements and how to provide more detailed disaggregated information in the notes. In a nutshell, items are aggregated based on shared characteristics and disaggregated based on characteristics that are not shared (dissimilar characteristics). Judgement is required.

	Requirement in Standard	Example
a	To classify and aggregate assets, liabilities, equity, income, expenses or cash flows into items based on shared characteristics​	Presentation of financial assets in the statement of financial position by classification in IFRS 9 Financial Instruments (e.g. amortised cost, fair value through profit or loss, fair value through OCI)
b	To disaggregate items based on characteristics that are not shared in the primary financial statements and in the notes	If an entity presents expenses by nature, disaggregating operating expenses by the nature of those expenses (e.g. presenting wages and benefits separately from depreciation)
c	To aggregate or disaggregate items to present line items  in the primary financial statements that fulfil the role of the primary financial statements in providing useful structured summaries	Applying the aggregation and disaggregation principles in (a) and (b) in order to provide a useful structured summary of information in the primary financial statements
d	To aggregate or disaggregate items to disclose information in the notes that fulfils the role of the notes in providing material information	For assets that are aggregated in the statement of financial position (e.g. financial assets), disclosing a disaggregation by asset class in the notes to the financial statements, considering the requirements of IFRS 18 and IFRS 7 Financial Instruments: Disclosures
e	To ensure that aggregation and disaggregation in the financial statements do not obscure material information	Considering materiality in assessing whether to aggregate otherwise similar items, such as an individually material expected credit loss recorded on a single financial asset vs. expected credit losses recorded on a portfolio of smaller financial assets

Always disaggregate when information is material

IFRS 18, paragraph 42 notes that an entity must always disaggregate items when the resulting information is material, although disaggregation need not always be in the primary financial statements. It can be in the notes. Entities should note, however, that there is no free choice. They must consider the role of the primary financial statements and notes, as well as the criteria in the above table, when determining where best to show information about a material item.

Aggregation and disaggregation of profit or loss items

When assessing whether items of profit or loss should be aggregated or disaggregated (i.e. whether they have characteristics that are shared (similar) or not shared (dissimilar)), entities should consider the following characteristics (refer to IFRS 18, paragraph B78):

• Nature
• Function (role) within the entity’s business activities
• Persistence (including the frequency of the item of income or expense or whether it is recurring or non-recurring)
• Measurement basis
• Measurement uncertainty or outcome uncertainty (or other risks associated with an item)
• Size
• Geographical location or regulatory environment
• Tax effects (for example, if different tax rates apply to items of income or expense)
• Whether the income or expenses arise on initial recognition of a transaction or event or from a subsequent change in estimate relating to the transaction or event.

Examples of income and expenses that might have sufficiently dissimilar characteristics to warrant separate presentation in the primary statements or notes include:

• Write-downs of inventories (and reversals)
• Impairment losses for property, plant and equipment (and reversals)
• Income and expenses from restructurings and reversals of any restructuring provisions
• Income and expenses from disposals of property, plant and equipment
• Income and expenses from disposals of investments
• Income and expenses from litigation settlements
• Reversals of provisions
• Non-recurring income and expenses not included in the above.

Aggregation and disaggregation of balance sheet items

When assessing whether balance sheet items should be aggregated or disaggregated (i.e. whether they have characteristics that are shared (similar) or not shared (dissimilar)), entities should consider the following characteristics (refer to IFRS 18, paragraph B110):

• Nature
• Function (role) in the entity’s business activities
• Duration and timing of recovery or settlement (including whether the asset or liability is classified as current or non-current or whether its recovery or settlement forms part of the entity’s operating cycle)
• Liquidity
• Measurement basis
• Measurement uncertainty or outcome uncertainty (or other risks associated with an item)
• Size
• Geographical location or regulatory environment
• Type, for example, the type of good, service or customer
• Tax effects – for example, if assets or liabilities have different tax bases
• Restrictions on the use of an asset or on the transferability of a liability.

Examples of assets, liabilities and equity that might have sufficiently dissimilar characteristics to warrant separate presentation in the primary statements or notes include:

• Property, plant and equipment: Disaggregated into classes in accordance with IAS 16 Property, Plant and Equipment
• Receivables: Disaggregated into amounts receivable from trade customers, related parties, prepayments and other amounts
• Inventories: Disaggregated, applying IAS 2 Inventories, into items such as merchandise, production supplies, materials, work in progress and finished goods
• Trade payables: Disaggregated, applying IAS 7 Statement of Cash Flows, to provide separately the amounts that are part of supplier finance arrangements
• Provisions: Disaggregated according to their nature, such as, provisions for employee benefits, decommissioning liabilities, or other items
• Equity capital and reserves: Disaggregated into various classes, such as paid-in capital, share premium and reserves.

Labelling

IFRS 18 has specific requirements for labelling financial statement items. For users to understand the composition of items in the primary financial statements and notes, entities must label them in a way that faithfully represents the characteristics of these items.

Scenario	How to label?
An item for which information is material is aggregated with other items for which information is also material	Provide an aggregation to summarise information (for example, property, plant and equipment in the primary financial statements). Disclose information in the notes about each material item (for example, land and buildings, plant and equipment, etc.).
An item for which information is material is aggregated with items for which information is not material	Use the most appropriate label for the material item (for example, prepayments and other assets). Only need to provide disaggregated information in the notes if the immaterial item obscures the material information.
An item for which information is not material is aggregated with other items for which information is not material	Various immaterial items are aggregated to complete a list of items (for example, other sundry assets complete the total assets in the balance sheet). Disaggregated information is not required about the immaterial items. However, if the aggregated balance is sufficiently large that users might reasonably question whether it includes information that could be material, further information should be disclosed, for example: Explanation that no items for which information would be material are included in the amount, or Explanation that the amount comprises several items for which information would not be material, with an indication of the nature and amount of the largest item.

Using ‘other’ as a label

Currently, many entities use the label ‘Other expenses’ to describe residual expenses not classified in one of the other nature or function categories in the statement of profit or loss.

IFRS 18 no longer permits ‘Other’ to be used to describe an item disclosed in the primary financial statements or notes unless it is immaterial. An entity can only use ‘Other’ if it cannot find a more informative label.

• If an item for which information is material is aggregated with items for which information is not material, entities should use a label that describes the item for which information is material. An example of this is using a label such as ‘prepayments and other assets.
• If items for which information is not material are aggregated based on shared similar characteristics, entities should use a label that describes the similar characteristics. An example of this is ‘Other receivables’.
• If items for which information is not material are aggregated with other items that are not material, but which do not share similar characteristics, entities should use a label to describe the dissimilar characteristics. An example of this is ‘Accounting fees, stationery costs and entertainment’.

More information

You can find more articles about IFRS 18 challenges on our IFRS 18 topic page. Additionally, our publication and webinar will also help you on your IFRS 18 implementation journey.

Need help

Our recent articles on IFRS 18 demonstrate the complexity of applying IFRS 18 in practice. Your chart of accounts will need to change in many ways to accurately categorise income and expenses by the five categories, and the transition dates start from 1 January 2026. It’s crucial that entities start preparing now. Reach out to our team for assistance with understanding the latest requirements in IFRS 18.