IFRS 18 Agenda Decisions Q1 2026: 5 Key Changes Explained
IFRS 18 — the new standard on Presentation and Disclosure in Financial Statements — replaces IAS 1 and becomes mandatory for annual periods beginning on or after January 1, 2027. As entities begin their implementation projects, the IFRS Interpretations Committee (IFRIC) has been actively issuing agenda decisions that clarify how IFRS 18’s new requirements should be applied. The IFRS 18 agenda decisions from Q1 2026 are particularly significant because they address grey areas that preparers across sectors have been wrestling with.
At SW Accounting & Consulting Corp, we advise clients on IFRS convergence and international reporting requirements. Here is our breakdown of each March 2026 decision and what it means for your implementation timeline.
How Does IFRS 18 Handle FX Differences on Intragroup Loans? 💱
The IFRIC confirmed that foreign exchange differences arising on intragroup loans denominated in a foreign currency create an accounting policy choice under IFRS 18 — entities may classify them within operating, investing, or financing activities, but must apply the chosen policy consistently.
This is a meaningful clarification for multinational groups. Under the old IAS 7 (cash flow statements) framework, FX differences on intercompany balances were often buried in operating cash flows. IFRS 18 introduces a structured category system (operating, investing, financing, and two new categories: integral associates/JVs and discontinued operations), and the question of where FX gains/losses on intragroup financing instruments belong was unresolved.
The IFRIC’s answer: preparers have a policy choice, but once chosen, it must be applied consistently to all similar instruments. This means treasury functions need to document their classification decisions early in the implementation process — ideally in a formal IFRS 18 accounting policy manual that should be drafted by mid-2026.
In our experience advising IFRS reporters, the FX policy choice decision is deceptively complex. Groups with extensive intercompany lending (common in real estate and private equity structures) may find that “financing activities” classification aligns better with how management views these cash flows, while manufacturing groups with working capital-driven intragroup loans may prefer “operating.” The key is making the decision deliberately rather than by default.
Are Non-Income Taxes Covered by IFRS 18 Income Tax Category? 🏛️
No — the IFRIC confirmed that non-income taxes (such as payroll taxes, VAT, sales taxes, and digital services taxes) fall outside the income tax line item under IFRS 18, and must be presented in operating profit or another appropriate location depending on their nature.
IFRS 18 includes a specific line item for income taxes in the statement of profit or loss. Some preparers had questioned whether levies like the Global Minimum Tax (Pillar Two), digital services taxes, or certain payroll-based levies could be classified as income taxes within IFRS 18’s structure. The IFRIC answered clearly: only taxes within the scope of IAS 12 (Income Taxes) qualify for that line item.
For entities subject to Pillar Two minimum taxes, this is particularly relevant. The IAS 12 amendment that introduced the Pillar Two exception means Pillar Two taxes ARE within IAS 12 scope, and therefore CAN be presented in the income tax line under IFRS 18. But digital services taxes — which are levied on revenues rather than income — fall outside IAS 12 and must be presented in operating expenses.
Entities operating in jurisdictions with digital services taxes (EU countries, UK, India, Kenya) need to ensure their IFRS 18 chart of accounts updates correctly segregate DSTs from income tax line items. Misclassification will affect operating profit subtotals and may mislead analysts comparing operating performance across companies.
What Expenses Qualify for IFRS 18 Expense-by-Nature Disaggregation? 📊
The IFRIC clarified that IFRS 18’s expense-by-nature disclosure requirement applies to expenses presented by function in the income statement — entities using function of expense presentation must still disclose certain nature categories (depreciation, amortization, employee benefits, and impairment losses) in the notes.
IFRS 18 retains the existing choice between function-of-expense and nature-of-expense presentation, but adds a significant new requirement: entities presenting by function must disclose a disaggregation of expenses by nature for specific line items. The March 2026 IFRIC decision clarifies which expenses fall within scope of this requirement and how to handle expenses that straddle multiple categories.
For entities in capital-intensive industries (manufacturing, infrastructure, real estate), the depreciation disaggregation requirement can be substantial — depreciation charges allocated across cost of sales, SG&A, and R&D will all need to be separately disclosed. Systems and reporting processes should be updated to capture this granularity before the 2027 adoption date.
How Does IFRS 18 Define a Parent Entity’s Main Business Activity? 🏢
The IFRIC confirmed that a parent entity’s “main business activity” under IFRS 18 is determined by reference to the consolidated group’s activities, not the parent’s standalone legal entity operations — a critical clarification for holding company structures.
IFRS 18 introduces the concept of “integral associates and joint ventures” — investments accounted for under the equity method that are integral to the entity’s main business activity. Cash flows related to these integral investments get a dedicated section in the cash flow statement. The question of what constitutes the “main business activity” was critical for pure holding companies and investment managers.
The IFRIC’s group-level assessment approach means that if a holding company’s consolidated group is primarily a manufacturing business, the holding company’s equity investments in manufacturing associates are likely “integral,” even if the parent entity itself only holds shares. This prevents artificial fragmentation of business activities across legal structures.
For the complete text of these decisions, see the IFRIC Update March 2026 on ifrs.org.
How Are FX Derivatives Classified Under IFRS 18? 💹
The IFRIC confirmed that FX derivatives used to hedge identifiable foreign currency risks are classified in the same category as the hedged item — a pragmatic approach that preserves cash flow statement coherence for hedging programs.
This decision addresses a practical concern from treasurers: if a company hedges the FX risk on a capital expenditure (investing activity) with a forward contract, should the derivative settlement be classified as investing or operating? The IFRIC answered: same category as the hedged item, which is investing. This aligns with economic reality and prevents misleading presentation where hedge settlements appear in operating cash flows while the hedged items are in investing.
| IFRIC Decision | Topic | Key Outcome |
|---|---|---|
| 1 | FX differences on intragroup loans | Accounting policy choice; must be consistent |
| 2 | Non-income taxes classification | Outside income tax line; classify in operating expenses |
| 3 | Expense-by-nature disaggregation scope | Required even for function-of-expense presenters |
| 4 | Parent main business activity | Assessed at consolidated group level |
| 5 | FX derivative classification | Same category as hedged item |
Frequently Asked Questions ❓
Key Takeaways: IFRS 18 Agenda Decisions March 2026
- Five binding IFRIC decisions clarify IFRS 18 application in FX, taxes, and expense presentation
- FX differences on intragroup loans: accounting policy choice, apply consistently
- Non-income taxes (DSTs, payroll taxes) go in operating expenses, not the income tax line
- Begin IFRS 18 implementation projects now — mandatory adoption is January 1, 2027
