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On 14 June 2024, the Malaysian Accounting Standards Board (MASB) issued MFRS 18 'Presentation and Disclosure in Financial Statements’. This new standard is identical to IFRS 18 ‘Presentation and Disclosure in Financial Statements’ issued by the International Accounting Standards Board (IASB).
Upon adoption, MFRS 18 will replace the current MFRS 101 ‘Presentation of Financial Statements’.
MFRS 101 provides a general structure that allows flexibility in presenting information in the statement of profit or loss. For examples:
In July 2021, we published a write-up highlighting the key points of the exposure draft of IFRS 18.
The following are the key differences between the exposure draft and IFRS 18:-
| Proposals in Exposure Draft | IFRS 18 |
| To segregate information on integral and non-integral associates and joint ventures | The IASB has decided not to move forward with the proposal. Under IFRS 18, entities will classify all income and expenses from associates and joint ventures accounted for using the equity method within the investing category. |
| To classify income and expenses under the investing category | The IASB has refined the definition of the investing category. |
| To classify income and expenses under the financing category | The IASB has decided that entities should classify all income and expenses from cash and cash equivalents under the investing category rather than the financing category. |
| No accounting choice for presenting operating expenses by nature or by function | The IASB has chosen not to prohibit the mixed presentation of expenses by both nature and function. |
| Unusual income and expenses | The IASB has decided not to proceed with the requirement to disclose and explain unusual items (commonly known as extraordinary items) in a single note. |
MFRS 18 introduces new requirements for presenting information in the statement of profit or loss, including specific totals and subtotals. It also requires the disclosure of management-defined performance measures and imposes new criteria for aggregation and disaggregation of financial information in the primary financial statements and accompanying notes. In addition, it includes consequential amendments to other accounting standards.
MFRS 18 permits an entity to present expenses in the operating category by nature, by function, or by using a combination of both approaches. Additional guidance is provided to help entities evaluate and select the approach that best fits their specific circumstances.
When certain expenses, such as depreciation and impairment losses on non-financial assets, are presented by function, additional information about these expenses by nature must be provided in a single note.
MFRS 18 imposes stricter requirements than MFRS 101 on how entities group information in financial statements to enhance the comparability of financial performance.
MPMs are a new concept introduced by MFRS 18. These are subtotals of income and expenses, such as adjusted profit and adjusted EBITDA, that are not defined by MFRS Accounting Standards but are used by entities in public communications outside the financial statements to convey management’s view on certain aspects of the entity’s financial performance.
For each MPM presented, entities are required to explain in a single note why the measure provides useful information and to reconcile it to the most comparable subtotals specified in MFRS Accounting Standards.
MFRS 18 will be effective for reporting periods beginning on or after 1 January 2027 and early adoption is permitted. The application should be applied retrospectively.
MFRS 18 will affect both public and private entities reporting under MFRS Accounting Standards, particularly those with diverse business operations or multiple principal activities. These entities should be mindful of the forthcoming changes.
Even though the standard will not take effect until 2027, entities should start evaluating the potential impact on their financial statements now and consider how the new standard will affect their financial reporting systems and processes.
Adopting MFRS 18 involves more than just reclassifying items in the statement of profit or loss. Depending on the complexity of an entity’s business operations, implementing MFRS 18 may require significant changes to existing accounting systems, charts of accounts, mappings and disclosures in the financial statements. By starting early, entities can proactively manage challenges, make the necessary adjustments, optimise resources and communicate the potential financial impact to investors.
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