Recent educational material on grouping of information

The July 2025 edition of the NZ IFRS 18 alert series sets out the roles of the primary financial statements and the notes, as well as the new principles of aggregation and disaggregation. These enhanced requirements help you to determine where to provide material information in the financial statements and the level of detail required for this information.

Recent deep dive webinar

Description of items in the financial statements

When labelling and describing items presented in the primary financial statements – such as totals, subtotals and line items – and items disclosed in the notes, you must do so in a way that faithfully represents the characteristics of the item (refer to paragraph 43). This entails providing all descriptions and explanations necessary for users to understand the item.

Such descriptions and explanations may need to include:

• the meaning of terms used; and

• information about how you aggregated or disaggregated assets, liabilities, equity, income, expenses and cash flows.

For example, you might describe expense items as ‘unusual’ in the notes. To ensure that such items are described in a way that faithfully represents the characteristics of the items, you would need to explain what you mean by ‘unusual’.

This guidance was developed in response to user feedback that, in some cases, the descriptions used are not always clear or complete (e.g., when providing information about ‘unusual’ expenses, an entity may not have explained why it considers them to be unusual).

We encourage you to think about what information your users needed when using your judgement in labelling items.

Q: What about describing items of income and expense as ‘extraordinary’?

A: NZ IAS 1 prohibited the presentation of items of income or expense as ‘extraordinary items’ in the statement(s) of financial performance but NZ IFRS 18 does not mention extraordinary items. You are required to classify all income and expenses included in the statement of profit or loss in one of the specified categories in that statement (operating, investing, financing, income taxes or discontinued operations) and therefore cannot create a separate category for extraordinary items.

Using the label ‘other’

Users have expressed concerns about the labelling an aggregation of items as ‘other’, as entities might not always provide information about what those items include (such as ‘other expenses’). In response, NZ IFRS 18 includes application guidance on determining a more informative label than ‘other’, to help you provide more useful information (refer to paragraphs B25–B26).

The diagram below summarises this application guidance.

Q: Are there any circumstances where I can still use the label ‘other’?

A: Yes. NZ IFRS 18 discourages you from labelling an aggregation of items as ‘other’. The standard does, however, contain guidance on what to do when a more informative label cannot be found. When this is the case, you must use a label that describes the aggregated item as precisely as possible. Examples include ‘other operating expenses’ or ‘other finance expenses’ (refer to paragraph B26(a)).

In addition, NZ IFRS 18 paragraph B26(b) requires you to consider whether an ‘other’ aggregation that comprises only immaterial items is sufficiently large that users of your financial statements may reasonably question whether the amount includes items for which information could be material. If so, information to resolve that question is material information. Further information about the amount must therefore be disclosed – for example:

• an explanation that no items for which information would be material are included in the amount; or

• an explanation that the amount comprises several items for which information would not be material – with an indication of the nature and amount of the largest item.

Note: NZ IFRS 18 does not provide guidance on what is ‘sufficiently large’ – judgement is required to determine this.

Presentation of operating expenses

NZ IFRS 18 paragraph 78 requires you to classify and present operating expenses in a way that provides the most useful structured summary of your expenses. To achieve this, you present operating expenses using:

• the nature of expense characteristic (i.e. by nature)

• function of expense characteristic (i.e., by function); or

• a mix of both characteristics (i.e., a mixed presentation).

Nature vs function classification

• Nature classification provides information related to the nature of the economic resources consumed to accomplish your activities. Examples include information about employee benefits and depreciation (paragraph 80).

• Function classification provides information about the activity to which the consumed resource relates. An example is the ‘cost of sales’ line item, which combines expenses relating to production or other revenue-generating activities (such as raw material expense and depreciation expense) (paragraph 81).

An example of a mixed presentation is set out below. You can find the full IASB illustrative example here.

Q: How do I decide whether to use the nature or function expense characteristic (or both?)

A: To provide the most useful structured summary of expenses, NZ IFRS 18 requires you to consider the following (refer to paragraph B80):

• What line items provide the most useful information about the main components or drivers of profitability?

• What line items most closely represent the way the business is managed and how management reports internally?

• What does standard industry practice entail?

• Would the allocation of particular expenses to functions be arbitrary – to the extent that line items presented would not provide a faithful representation of the functions?

Ultimately you should think about the users of your financial statements and what presentation of operating expenses would provide useful information for their decision making and how this aligns with how you are managing your business internally.

Q: If I decide that a mixed presentation provides the most useful structured summary, is there anything else that I need to consider?

A: NZ IAS 1 Presentation of Financial Statements did not permit a mixed presentation but, to ensure that the statement of profit or loss provides a useful structured summary of expenses, NZ IFRS 18 does not contain a similar prohibition. However, a mixed presentation of expenses could make it difficult for users to compare entities, particularly if the labels used for ‘nature’ line items do not make it clear whether expenses of that nature are also included in some ‘function’ line items (for example, personnel costs).

To address these concerns, NZ IFRS 18 requires you to:

• Label line items in a way that clearly identifies what expenses are included in each line item (refer to paragraph B82). For example, if some employee benefits are included in a cost of sales ‘function’ line item and others in a ‘nature’ line item, the label for the nature line item should clearly identify that it does not include all employee benefits (e.g., ‘employee benefits other than those included in cost of sales’).

• Classify and present expenses consistently from reporting period to the next (refer to paragraph B83 – with exceptions as noted in paragraph 30).

Tier 1 entities: disclosure of information about the nature of expenses

Presenting operating expenses classified by function can provide useful information to users but can also make it harder for users to understand the composition of line items. Information about the nature of expenses makes it easier for users to forecast future operating expenses and enables a clearer linkage between the information in the statement of profit or loss and information in the statement of cash flows.

Therefore – if you present one or more line items by function, you must disclose a qualitative description of the nature of expenses included in each function line item (refer to paragraph 82(b)). In a single note, you must also disclose the amounts included in each line item for (refer to paragraph 83):

You must also provide a list of any line items outside the operating category that include amounts relating to any of these five specified expenses (refer to paragraph 83(b)).

Feedback to the IASB noted that information about the amounts of these five specific expenses is generally useful to users and is not expected to be costly for preparers to provide. To preserve the cost-benefit balance of providing this information, NZ IFRS 18 contains an exemption from disclosing disaggregated information about the amounts of nature expenses beyond those five specified expenses (refer to paragraph 84).

The IASB has developed an example which illustrates the disclosure requirements for the five specified expenses – refer to page 137 of this document.

Q: What makes up ‘employee benefits’ and ‘depreciation’ for the purposes of disclosing these specified expenses by nature?

A: The amount disclosed for employee benefits includes the amounts recognised by applying NZ IAS 19 Employee Benefits, as well as the amount for services received from employees recognised by applying NZ IFRS 2 Share-based Payment (refer to paragraph 83).

Similarly, the amount disclosed for depreciation includes amounts required to be disclosed under NZ IAS 16 Property, Plant and Equipment, NZ IAS 40 Investment Property and NZ IFRS 16 Leases (refer to paragraph 83).

Q: How does the requirement to disclose information about specified expenses by nature interact with the principles of aggregation and disaggregation in NZ IFRS 18?

A: NZ IFRS 18 requires you to disaggregate items if any of the resulting information is material. However, you are exempt from disclosing disaggregated information about (paragraph 84):

• the amounts of nature expenses included in each function line item, beyond the amounts for the five specified expenses; and

• in relation to nature expense specifically required by an NZ IFRS to be disclosed in the notes – the amounts of expenses included in each function line item presented in the operating category, beyond the amounts for the five specified expenses.

NZ IFRS 18 includes this exemption for cost-benefit reasons. The IASB aimed to achieve a cost–benefit balance by only requiring entities to disclose disaggregated information about certain expenses by nature (e.g., depreciation, amortisation, etc) where there was specific feedback from users that information for these items is useful to their decision-making. If entities were also required to apply the general disaggregation requirements (paragraph 41), they would need to disclose further information (if material) about expenses by nature, which would upset the cost–benefit balance.

Key considerations when preparing to implement these requirements

Other NZ IFRS 18 news

Upcoming new amending standard

• Amendments to For-profit Domestic Accounting Standards due to NZ IFRS 18 – this new amending standard primarily aims to ensure that the presentation requirements for prospective and summary financial statements are consistent, where appropriate, with the requirements for the presentation of historical financial statements under NZ IFRS 18. The NZASB approved the final amending standard, with no changes from the Exposure Draft, on 12 August 2025. We expect to issue the amending standard later this month.

Recent publication

• Disclosures about Uncertainties in the Financial Statements Illustrated using Climate-related Examples (published by IASB technical staff) – includes Example 6, which demonstrates how an entity may disaggregate information about their property, plant and equipment based on dissimilar climate-related transition risk characteristics. Please note that the IASB has not approved this staff draft and expects to issue the final examples in October 2025.

Upcoming events

• 21 August 2025 – NZ IFRS 18 community of practice roundtable in Auckland, targeted at those closely involved in implementing NZ IFRS 18. If you are interested, please email accounting@xrb.govt.nz for more information.

• 7 October 2025 – NZ IFRS 18 deep dive on management-defined performance measures – register here.

Open consultation

• IFRS Interpretations Committee Tentative Agenda Decision – Updates to Committee’s agenda decisions for IFRS 18

In case you missed it

• NZ IFRS 18 deep dives on the following topics

  • Categories and subtotals in the statement of profit or loss – view the recording here. The event slides can be found here.

  • Grouping of information in the financial statements – view the recording here. The event slides can be found here.

• Previous alerts in the NZ IFRS 18 on the 18th series and recordings of previous deep dive webinars can be found in the Guidance and useful information section of our NZ IFRS 18 webpage.

Our website is your one-stop shop for all things NZ IFRS 18-related.

What more do you want to know?

We are issuing these alerts to help you get ready for NZ IFRS 18. The diagram below sets out the focus for each month’s alert throughout 2025.

We are keen to hear from you on any areas of the standard where you would like more information or guidance. Please contact us at accounting@xrb.govt.nz

This publication has been prepared by staff of External Reporting Board (XRB) for information or illustration purposes. It does not form part of the standards or authoritative publications issued by the XRB. It should not be used as a substitute for reading the relevant standard requirements of NZ IFRS 18, nor is it a substitute for professional accounting advice. The content of this newsletter is for general information only and does not constitute professional advice. ​The XRB expressly disclaims all liability for any loss or damages arising from reliance upon any information in this newsletter. ​