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This article is part of our ongoing series looking at the impact of AASB 18 on financial reporting.
AASB 18 Presentation and Disclosure in Financial Statements (AASB 18) is effective for annual reporting periods beginning on or after 15 December 2026.
Our previous articles covered:
An overview of the requirements of AASB 18
Understanding Management-defined Performance Measures
Overarching principles for presentation and disclosure
In this article, we look at the changes to the income statement in more detail.
New categories in the statement of profit and loss
The three categories may appear familiar, as they are the same subheadings used in the cash flow statement. However, care is needed, as the definitions do not align exactly.
Investing
The investing category includes income and expenses from these types of assets:
- Investments in associates, joint ventures and unconsolidated subsidiaries
- Cash and cash equivalents
- Other assets that generate a return individually and largely independently of other resources of the entity, such as investments in bonds, shares, other financial instruments, or in investment properties.
However, if an entity has a main business activity of providing financing to customers or investing in these types of assets, the related income and expenses would usually be classified within the operating category instead.
Financing
For most entities, the financing category covers income and expenses of transactions that involve the raising of finance. For example, this could be a bank loan or overdraft, or a supplier financing arrangement, or other debt instruments such as bonds or convertible notes.
It includes interest income and expenses, as well as the impact of interest rate changes, related to liabilities that do not only involve the raising of finance. Examples include lease liabilities, trade and other payables, contract liabilities with a significant financing component, remeasurement of contingent consideration on a business combination and net interest on a defined benefit pension obligation.
It also includes the unwinding of discounts on provisions. This may be significant for entities with significant rehabilitation or make-good obligations.
Where an entity has a main business activity of providing financing to customers, the classification of income and expenses will be impacted, with certain items (for example, those arising from liabilities relating to providing financing to customers) will be presented in the operating category instead of the financing category.
Operating
The operating category is a residual category which captures all income and expenses that do not fall under the investing or financing categories, except for income and expenses shown separately as discontinued operations or income taxes. In essence, it is the default classification for anything arising directly from the entity’s core operations, regardless of whether the items occur frequently, or are unusual in nature.
Operating profit shows the overall result of an entity’s operating activities for the period. It is not meant to be a ‘normalised’ or ‘adjusted’ profit measure, meaning that reported operating profit is not necessarily persistent or recurring.
Results from discontinued operations, as defined under AASB 5 Non-current Assets Held for Sale and Discontinued Operations, are still reported separately. Similarly, income taxes in scope of AASB 112 are reported separately after the ‘profit before income taxes.’
Explaining the changes in the example AASB 18 statement of profit and loss
Although AASB 18 will not affect the total profit or loss for the year, it will alter how the results are presented.
The example below demonstrates the new presentation:
Example AASB 101 Presentation
| AUD'000 | ||
| Revenue | 400,000 | |
| Cost of sales | (250,000) | |
| Gross profit | 150,000 | |
| Other operating income | 30,000 | A |
| Selling expenses | (25,000) | |
| General & administrative expenses | (60,000) | D |
| Research & development expenses | (10,000) | |
| Other operating expenses | (4,000) | |
| Share of profit/(loss) from associates and joint ventures | 7,500 | B |
| Operating profit | 88,500 | |
| Finance income | 1,000 | C |
| Finance expense | (3,000) | |
| Profit before income taxes | 86,500 | |
| Income tax expense | (21,500) | |
| Profit for the year | 65,000 |
Example AASB 18 Presentation
| AUD'000 | ||
| Revenue | 400,000 | |
| Cost of sales | (250,000) | |
| Gross profit | 150,000 | |
| Other operating income | 26,000 | |
| Selling expenses | (28,000) | D |
| General & administrative expenses | (56,500) | D |
| Research & development expenses | (10,000) | |
| Other operating expenses | (4,500) | D |
| Operating profit | 77,000 | |
| Share of profit/(loss) from associates and joint ventures | 7,500 | B |
| Gain/(loss) on sale of investment property | 4,000 | A |
| Income from other investments | 1,000 | C |
| Profit before financing and income taxes | 89,500 | |
| Finance expense on borrowings | (2,000) | |
| Interest expense on pension liabilities | (1,000) | |
| Profit before income taxes | 86,500 | |
| Income tax expense | (21,500) | |
| Profit for the year | 65,000 |
Preparing for revised income statement presentation
To ensure that you are prepared for the new requirements of AASB 18, you should:
Make sure your finance team understands the new requirements
Review your current income statement line items and align them with the new categories and required subtotals
Identify any reclassifications of items within the income statement needed to comply with the new requirements
If you have foreign exchange gains or losses, ensure that your systems can track which items gave rise to the gain or loss
Update your systems, including Chart of Accounts, ERP and reporting templates to extract the relevant information so that all presentation and disclosure requirements are met
Taking these actions early will help smooth your transition to the new reporting standard.
Getting ready for the new income statement presentation
AASB 18 brings fundamental changes to how income and expenses are classified and presented, so finance teams should amend their reporting processes well ahead of adoption.
Helping you navigate AASB 18
Please contact RSM Australia’s National Technical team if you would like further support or guidance in your preparation for the implementation of AASB 18.
Navigating AASB 18
AASB 18 represents one of the most significant changes to financial statement presentation in recent years. Stay ahead of the requirements with practical insights from our AASB 18 article series and support from our technical accounting specialists.
Need help preparing for AASB 18?
Our team can help you understand the impact, manage implementation and ensure your financial reporting remains compliant.
Navigating AASB 18
AASB 18 represents one of the most significant changes to financial statement presentation in recent years. Stay ahead of the requirements with practical insights from our AASB 18 article series and support from our technical accounting specialists.
Need help preparing for AASB 18?
Our team can help you understand the impact, manage implementation and ensure your financial reporting remains compliant.
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