Assurance Gazette – October 2024 Edition

We are delighted to present the October 2024 edition of the Assurance Gazette. This edition explores NFRA’s proposed revisions to SA 600, aiming to align with international standards and enhance group audit quality in India. Prompted by audit failures like DHFL and IL&FS, these revisions address key issues, such as improved coordination between principal and component auditors, stricter documentation, and increased professional skepticism. As NFRA seeks public feedback, understanding these changes is crucial for all professionals, ensuring a smooth adaptation when the standards are finalized. This issue also highlights IFRS 18, issued by the IASB, which aims to enhance the presentation and disclosure of financial statements, improving transparency and comparability across entities. The standard seeks to raise the quality of financial reporting by enforcing consistent categorization, allowing users to easily track and better understand financial performance across businesses. 

IFRS 18 – Presentation and Disclosure in Financial Statements 

It was issued by the International Accounting Standards Board (IASB) on April 9, 2024, with an effective date for periods beginning on or after January 1, 2027. The standard focuses on enhancing the presentation and disclosure of financial information, aiming to increase transparency, improve comparability across entities, and give users a clearer understanding of companies’ financial performance. 

Key Features of IFRS 18 

1. Classification of Income and Expenses 

IFRS 18 requires companies to classify their income and expenses into five major categories: 

• Operating: Reflects the core activities of the business. For banks and insurers, income and expenses that might traditionally fall into investing or financing categories will be included here due to the nature of their business models. 
• Investing: Pertains to activities that generate returns from investments not tied to the core operations. 
• Financing: Includes interest and other costs related to funding the business. 
• Income Taxes: Captures the tax expenses associated with operating profit and other categories. 
• Discontinued Operations: Focuses on the results from parts of the business that are no longer operational.

Example: A retail company would classify its revenue from product sales under Operating, while a bank would classify income from loans, interest, and fee-based services under Operating due to its core business of providing financing.

2. Management-Defined Performance Measures (MPMs) 

IFRS 18 introduces a requirement for companies to disclose MPMs. These are non-GAAP performance measures that management uses to communicate financial performance outside of the standard IFRS measures. MPMs must be reconciled with the most comparable IFRS totals or subtotals, ensuring that users can understand the differences between management’s perspective and standard financial measures. 2. Management-Defined Performance Measures (MPMs).