IFRS 18: Presentation of Statement of Comprehensive Income v. Cash Flow Statement – A Distinction Without A Difference?

Introduction

The International Financial Reporting Standards (IFRS) 18 governs the preparation and disclosure in the financial statements of an entity. The standard which was issued on 9th April 2024 is effective for accounting periods beginning on or after 1st of January 2027, although it permits early adoption.

The International Financial Reporting Standards (IFRS 15) governs the recognition of revenue from contracts with customers, providing principles that guide entities in reporting revenue to reflect the transfer of goods or services to customers. While this standard primarily focuses on revenue recognition, it also sparks discussions on how revenue impacts comprehensive income and cash flow statements. However, the distinction between the presentation of comprehensive income and the cash flow statement under IFRS 18 may appear as a nuanced detail, yet it holds significant implications for financial reporting.

Comprehensive Income
Comprehensive income encompasses all changes in equity during a period, except those resulting from transactions with owners in their capacity as owners. Under IFRS 18, revenue recognition affects comprehensive income indirectly. Revenue recognized from contracts with customers contributes to the overall performance of the entity, thereby impacting comprehensive income. However, comprehensive income includes not only revenue but also other elements such as gains and losses from investments, foreign currency translation adjustments, and unrealized gains and losses on available-for-sale financial assets. Therefore, while revenue recognition is a vital component of comprehensive income, it is just one piece of the broader financial picture.

Cash Flow Statement
On the other hand, the cash flow statement provides insight into the cash generated and used by an entity during a specific period. Revenue recognized under IFRS 18 directly impacts the cash flow statement, as it represents cash inflows from operating activities. However, the cash flow statement includes other elements such as cash flows from investing activities, and financing activities. These components offer a comprehensive view of an entity’s liquidity and cash flow management, beyond just revenue generation. IFRS 18 addresses the gaps created by the existing standard (IAS1) such as ambiguity as to the classification of income and expense items in the statement of comprehensive income.

Presentation of Statement of Comprehensive Income under IFRS 18.

Distinction without a Difference?

The new standard (IFRS 18) ensures transparency of performance measures disclosed in the financial statements, comparability of information in the statement of comprehensive income, and ability of the users of the financial statement to make reasonable and more informed decision. The first requirement in the new standard is the presentation of new subtotals in the statement of comprehensive income as operating profit/loss, profit/loss before financing and tax, profit/loss for the year after tax, and the five (5) categorizations of income and expense items as (operating, investing, financing, income taxes and discontinued operations). The second requirement is the identification of management-defined performance measures (MPM) and the related disclosures in the financial statements. The third requirement of the new standard is the establishment of consistent principles for labelling and grouping of items in the comprehensive income. The principles of IFRS 18 are illustrated in the table below for a general corporate entity.

While revenue recognition affects both comprehensive income and the cash flow statement, the distinction lies in the focus and purpose of each financial statement. Comprehensive income provides a holistic view of an entity’s financial performance, incorporating not only revenue but also other income and expenses. In contrast, the cash flow statement focuses specifically on cash movements, highlighting the sources and uses of cash within the organization.

Despite this difference in focus, both comprehensive income and the cash flow statement play complementary roles in financial reporting, offering stakeholders a comprehensive understanding of an entity’s financial health. While revenue recognition under IFRS 18 may impact both statements, each serves a distinct purpose in conveying different aspects of an entity’s financial performance and liquidity.

In conclusion, while the presentation of comprehensive income and the cash flow statement under IFRS 18 may seem similar due to their shared reliance on revenue recognition, they serve different purposes and provide unique insights into an entity’s financial position. Understanding these distinctions is essential for stakeholders to interpret financial statements accurately and make informed decisions.

FINANCE ACTS IN NIGERIA: CHANGING THE LANDSCAPE OF TAX COMPLIANCE AND THE NEED FOR TAX HEALTH CHECKS

The Nigerian tax environment is constantly evolving, to stay up with the constantly evolving business environment, companies need to regularly evaluate their tax structures, tax positions, and tax compliances. This will help to guarantee that overall tax positions are supported by sufficient evidence, compliances are tracked, and any potential litigation-related issues are handled properly.
The Finance Acts in Nigeria had been adopted as a fiscal policy model which introduced over 150 amendments to existing tax and regulatory legislations in Nigeria and is aimed at promoting fiscal sustainability, enhancing revenue generation, and supporting small businesses. As at date, the Nigerian Government has introduced four Finance Acts which are Finance Acts of 2019, 2020, 2021, and 2023. These pieces of legislation have changed the tax compliance regime for businesses in general which necessitates the need for consistent Tax Health Checks. The impact of the Finance Act on tax compliance in Nigeria has been significant. It has led to increased revenue generation for the government, increased tax compliance for taxpayers, and reduced the incidence of tax evasion and avoidance. The Finance Act has also introduced several measures to simplify the tax system, making it easier for taxpayers to comply with tax laws and regulations.


The Tax Health Check is a comprehensive review of a taxpayer’s tax affairs to ensure compliance with tax laws and regulations. It is aimed at identifying areas of non-compliance and addressing them before they become a problem for the taxpayer. It also helps taxpayers to avoid penalties, interest, and other charges that may arise from non-compliance.It involves a comprehensive review of a taxpayer’s tax affairs, including tax returns, financial statements, and other relevant documents. The review is conducted by a qualified tax professional who assesses the taxpayer’s compliance with tax laws and regulations.Best practices for conducting a Tax Health Check in line with the Nigerian Finance Act include engaging qualified tax professionals, conducting the review in a timely manner, and ensuring that all relevant documents are reviewed. Taxpayers should also ensure that they have a good understanding of tax laws and regulations and seek professional advice where necessary.


STEPS IN CONDUCTING TAX HEALTH CHECK
1. Understanding the Company’s nature of business; the industry it operates.
2. Determining the scope of work to enable you to work effectively and efficiently.
3. Establish a timeline; Every task should have its own timeline.
4. Collect sufficient data; Verify that the information obtained is sufficient, accurate, and error-free.
5. Identify risks and concerns: Determine the hazards that might arise from a failure to provide necessary documentation or from a failure to comply with applicable tax legislation.
6. Recognize opportunities; Conduct a thorough examination of the tax reconciliation process to make sure that all potential avenues for lowering tax obligations or recouping unpaid taxes are found.
7. Prepare your tax report; recommending solutions for danger areas and strategies to guarantee tax compliance.


Despite the benefits of Tax Health Checks, there are several challenges faced by taxpayers and tax authorities in implementing the procedure. These challenges include a lack of awareness among taxpayers, a shortage of qualified tax professionals, and a lack of cooperation from taxpayers. To improve the implementation of Tax Health Check procedures in Nigeria, it is recommended that tax authorities provide more education and awareness campaigns to taxpayers. This will help to increase awareness of the benefits of the Tax Health Check and encourage more taxpayers to conduct the review.
This note should not be taken as tax advice, please contact your tax manager if you require any clarification.


Daniel Fowobaje
Senior Associate, Tax Audit.
d.fowobaje@taxaide.com.ng
info@taxaide.com.ng

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