Navigating IFRS 18: Presentation & Disclosure Overhaul for Banks & SACCOs

The International Accounting Standards Board (IASB) issued IFRS 18 Presentation and Disclosure in Financial Statements in April 2024, setting a mandatory effective date of 1 January 2027 (with comparative restatements required for FY 2026). Replaces IAS 1, IFRS 18 represents the most significant overhaul of financial statement presentation in two decades.

While IFRS 18 does not alter recognition or measurement rules (such as IFRS 9 loan loss provisioning or IFRS 15 revenue), it fundamentally restructures the Statement of Profit or Loss (Income Statement), enforces mandatory subtotals, brings non-GAAP metrics into audited notes, and tightens expense disaggregation.

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🏛️ 1. The Five Standardized Income Statement Categories

To eliminate diversity in performance reporting across financial institutions and corporate entities, IFRS 18 mandates that all income and expenses be classified into five strict categories:

Operating Category: The primary default category for all core operational revenue, interest income on member loans, and operating expenses.

Investing Category: Returns from independent investments, equity-accounted associates, and joint ventures.

Financing Category: Expenses on liabilities arising from transactions that involve raising finance (excluding operational deposits).

Income Taxes: Statutory tax expenses under IAS 12.

Discontinued Operations: Items under IFRS 5.

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📊 2. Mandatory Subtotals & Performance Boundaries

IFRS 18 replaces discretionary line items with two mandatory, standardized subtotals:

Operating Profit or Loss: Primary indicator of core operational efficiency.

Profit or Loss Before Financing and Income Taxes: Clear boundary between core operations/investments and corporate debt capital structure.

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💼 3. The "Main Business Activity" Rule for Banks & SACCOs

For traditional commercial entities, interest income is "Investing" and interest expense is "Financing". However, for Kenyan Commercial Banks and Deposit-Taking SACCOs (DT-SACCOs):

Specified Main Business Activity (SMBA): Providing finance to members/customers and mobilizing deposits.

Operating Classification: Interest income on member advances AND interest expense paid on member deposits/share capital are classified directly within the Operating Category.

SASRA & CBK Regulatory Alignment: Ensures that statutory operating profit figures reported in SASRA Form 1 & Form 4 remain 100% aligned with IFRS 18 audited financial statements.

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🔍 4. Management-Defined Performance Measures (MPMs)

If an institution uses non-GAAP metrics (e.g., "Adjusted EBITDA", "Core SACCO Operating Surplus", "Normalized NIM") in public briefings or boardroom decks:

Single Note Disclosure: All MPMs must be disclosed within a single, dedicated note in the audited financial statements.

Step-by-Step Reconciliation: Must include a line-by-line reconciliation to the most directly comparable IFRS subtotal (e.g., Operating Profit).

Explanation of Utility: Clear rationale explaining why the measure provides useful insight into performance.

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🗓️ 5. Implementation Roadmap (2026 – 2027)