Why this topic matters now
IFRS 18 reshapes how profit or loss is presented. It defines categories. It locks in required subtotals. It asks you to explain management-defined performance measures with care. Early adoption brings these ideas into board papers and analyst packs before the mandatory date. That means SBR questions can set cases in which management plans to adopt now. Your job is to write answers that look ready for the real world. This guide shows how to build those scripts with simple structure and calm control. For a tidy base to your study plan, you can start with the ACCA exam success guide.
IFRS 18 in one page
Keep the core ideas close. You will use them again and again.
- Categories in profit or loss
Income and expenses fall into operating, investing, and financing. Use definitions set by the standard. - Required subtotals
Operating profit is defined. Financing subtotals are defined. You cannot create your own version. - Management-defined performance measures (MDPMs)
If management uses a non-IFRS measure, you must reconcile it to IFRS subtotals. You must explain why the measure helps users. - Disaggregation and unusual items
Split lines when it helps users. Flag unusual items and explain their effect. - Connectivity
The narrative must link to the numbers. The story must line up with cash flows and note disclosures.
That is enough to frame most answers. Avoid long theory. Apply the rule to the case and move on.
What examiners want to see in your script
Examiners prize applied writing. They want to see how you think and how you guide a board. Aim for three things.
- Clarity
Use short sentences. Name the rule. State the effect. - Control
Keep to time. Finish each part. Avoid drift. - Connectivity
Link presentation choices to what users see in the statements and the front half.
If you write like this, you gain professional marks and protect your score under time pressure.
A simple structure that works
Use this four step frame in almost every paragraph.
- Issue – what choice or problem must be addressed.
- Rule – the specific IFRS 18 point that applies.
- Apply – how the facts fit the rule.
- Conclude – what to present, disclose, or change.
Keep each step to one or two lines. You will write faster and score higher.
Micro-scenario 1 – interest on lease liabilities
Case
A retailer labels “operating profit” after removing interest on lease liabilities, gains on property sales, and some restructuring costs.
Script
- Issue – whether the subtotal called operating profit complies with IFRS 18.
- Rule – IFRS 18 defines categories and required subtotals. Financing costs, including interest on lease liabilities, sit in financing. Subtotals must follow the standard.
- Apply – move lease interest to financing. Classify gains on sale of property as investing. Keep restructuring costs in operating unless they relate to discontinued operations.
- Conclude – present a compliant operating profit subtotal. If management wishes to show an adjusted measure, present it as an MDPM with a clear reconciliation and a short rationale.
Why this works
You state the rule. You make the reclass. You keep the language tight.
Micro-scenario 2 – an adjusted operating profit MDPM
Case
Management reports “adjusted operating profit” that strips out a warehouse fire loss and some stock write-downs.
Script
- Issue – whether the adjusted measure is acceptable and how to present it.
- Rule – IFRS 18 permits MDPMs when reconciled to IFRS subtotals and explained.
- Apply – show a bridge from operating profit to the adjusted figure. Treat the fire loss as an unusual item in the notes with nature and effect. Explain why the MDPM helps users assess performance. Avoid removing routine stock write-downs.
- Conclude – present the MDPM with a one-line purpose and a full reconciliation. Do not relabel IFRS subtotals.
Why this works
It respects IFRS 18 and keeps investor needs front and centre.
Micro-scenario 3 – disaggregation that helps users
Case
Cost of sales is a single large line. The board thinks a split by nature would help.
Script
- Issue – whether to disaggregate and how.
- Rule – IFRS 18 requires disaggregation where it improves understanding.
- Apply – split material components such as raw materials, direct labour, and production overheads. Avoid a long list that adds no insight.
- Conclude – present a two or three part split with short labels. Explain the reason for the split in one line.
Why this works
You improve clarity without bloating the note.
Micro-scenario 4 – equity-accounted results and operating profit
Case
A group has a joint venture and shows its share of profit inside operating profit.
Script
- Issue – where to place equity-accounted results.
- Rule – IFRS 18 requires consistent classification. Results of associates and joint ventures are not part of operating profit unless they are integral to the entity’s main business model as defined by the standard.
- Apply – assess the nature of the investee. If not integral, present outside operating profit and explain placement.
- Conclude – keep operating profit focused on the entity’s own operations. Cross-reference to the equity accounting note.
Why this works
You show judgement and protect comparability.
Micro-scenario 5 – unusual income and the narrative
Case
A one-off government grant for a flood defence upgrade increases profit this year.
Script
- Issue – how to present and explain the item.
- Rule – IFRS 18 asks for clear identification of unusual items and their effect.
- Apply – present within the relevant category. Disclose in a short note: nature, amount, and why it is not expected to recur.
- Conclude – flag the effect on operating profit and on any MDPM. Avoid dressing the grant as routine income.
Why this works
It tells users what changed and why, in simple terms.
Phrase bank you can reuse
- “Operating profit follows the standard’s definitions and excludes items classified as investing or financing.”
- “The measure is management-defined and is reconciled to IFRS subtotals.”
- “The split improves understanding without overwhelming users.”
- “Classification is consistent with the business model and the definitions in IFRS 18.”
- “The disclosure explains the nature and effect of the unusual item.”
Read each line aloud. They feel natural and they score.
A marker’s eye view
Write as if you are marking the paper.
- Did you answer the requirement
- Did you use the correct IFRS 18 term
- Did you apply it to the facts in front of you
- Did you conclude and move on
This mindset stops drift. It also helps you finish.
Time control that fits IFRS 18 prompts
Use a simple split.
- Read and plan – one minute per mark.
- Write – one minute per mark.
- Check – a short final scan for headings and signposts.
For a 10 mark section, you have 10 minutes to draft. Aim for 10 lines of applied writing and two clean mini conclusions. Keep your pen moving.
How to build lean notes that work
Make one page per theme.
- Operating, investing, and financing – two definitions each and three common reclasses.
- MDPMs – a one-line purpose, a four-line reconciliation example.
- Unusual items – a list of phrases that name the nature and effect.
- Disaggregation – a short rule and two industry examples.
- Equity-accounted results – placement rule and one applied sentence.
This note lets you start fast. It also cuts the urge to rewrite theory.
Linking IFRS 18 to other SBR topics without losing focus
Examiners like integrated answers. Keep the link short and relevant.
- IFRS 11 – if a joint arrangement is central to operations, discuss whether results are integral. Then place outside operating profit unless the definition supports inclusion.
- IFRS 9 hedge accounting – if cash flow hedges recycle into cost of sales, note the effect on operating profit.
- IAS 36 impairment – if reclassifications change how users see a segment’s performance, confirm that impairment testing is unchanged but the narrative must explain the story.
- Ethics and presentation – fair, clear, and not misleading. No relabelled subtotals.
One sentence is enough. Return to IFRS 18 and keep writing.
Common pitfalls and quick fixes
- Inventing your own operating profit
Fix – use the standard’s definitions and show a proper subtotal. - Hiding adjustments inside a new label
Fix – if it is an MDPM, reconcile it and explain it. Do not rename IFRS subtotals. - Over-disaggregation
Fix – split only where it helps. Two or three lines beat ten. - No bridge between narrative and numbers
Fix – add one line that links the story to profit or loss and, if needed, to cash flows. - Running out of time
Fix – stop adding theory. Conclude and move on.
Build exam craft with tiny drills
You can improve with ten minute tasks.
Drill A – Define and place
Pick one line item and place it in a category. Write a six line support.
Drill B – Reconcile an MDPM
Start with operating profit. Add back a single unusual cost. Write a four line bridge with a purpose sentence.
Drill C – Disaggregate with restraint
Take a large line. Propose a two part split. Explain why users benefit.
Do one drill each day. You will write faster within a week.
A four week sprint for early adopters
Week 1 – Foundations
- Build your one page IFRS 18 note.
- Write two micro-scenarios.
- Create a personal phrase bank of ten lines.
Week 2 – Application
- Attempt two timed questions that include MDPMs and unusual items.
- Rewrite the weakest paragraph each time.
- Add a small disaggregation example to your notes.
Week 3 – Integration
- Write one case that links IFRS 18 to hedge accounting or equity-accounted results.
- Practise a six line board explanation of operating profit.
- Record your time per mark.
Week 4 – Mocks and polish
- Sit one full mock.
- Mark it hard.
- Fix three habits.
- Sit a short second mock three days later.
You are now ready to adapt to any IFRS 18 early adoption twist.
Model paragraph library
Copy these into your notes and adapt to the case.
- “Operating profit should reflect the entity’s main business activities. Items classed as investing or financing sit outside this subtotal under IFRS 18.”
- “The adjusted measure is a management-defined performance measure. Present a reconciliation to operating profit and explain why the measure helps users.”
- “The split improves understanding by separating material components. Further disaggregation would not add insight.”
- “Results from equity-accounted investees are presented outside operating profit unless they meet the definition of integral to the business model.”
- “The grant is unusual in nature and size. Disclose the amount and effect and explain why it is not expected to recur.”
Short. Precise. Marker-friendly.
How to self-mark like a pro
After each script, check four things.
- Headings and signposts present
- One applied point per two lines
- Correct use of IFRS 18 terms
- A conclusion that tells the board what to do
Score yourself on these points. Your next script will improve at once.
If you are resitting with IFRS 18 now in play
Do not start from zero. Keep what works. Fix three gaps.
- Write a strict operating profit paragraph for two past scripts.
- Build one clean MDPM reconciliation that you can reuse.
- Practise one unusual item disclosure that fits your industry.
Sit a short mock in week one. Repeat in week three. Your writing will harden and your time control will settle.
When a course can help
Some candidates want dates, marking, and calm feedback. A structured path with mocks, debriefs, and weekly submissions can keep you honest and save time. If that suits your week, review the current ACCA SBR course options and plug these drills into the plan you choose.
Final checklist before exam day
- I can define operating, investing, and financing.
- I can state what goes in operating profit and what does not.
- I can present an MDPM with a short reconciliation and purpose line.
- I can label and explain an unusual item.
- I can split a large line with restraint.
- I can write a six line answer that applies IFRS 18 to a case.
Tick those off and you are ready. Keep your writing short. Keep your structure tight. Finish the paper. That is how you handle IFRS 18 in SBR with confidence.
