The IFRS^® Accounting Standards Discussion Group’s purpose is to act in an advisory capacity to assist the Accounting Standards Board (AcSB) in supporting the application in Canada of IFRS^® Accounting Standards. The Group maintains a public forum at which issues arising from the current application, or future application, of issued IFRS Accounting Standards are discussed and makes suggestions to the AcSB to refer particular issues to the International Accounting Standards Board (IASB) or IFRS^® Interpretations Committee. In addition, the Group provides advice to the AcSB on potential changes to IFRS Accounting Standards and such discussions are generally held in private.

The Group comprises members with various backgrounds who participate as individuals in the discussion. Any views expressed in the public meeting do not necessarily represent the views of the organization to which a member belongs or the views of the AcSB.

The discussions of the Group do not constitute official pronouncements or authoritative guidance. This document has been prepared by the staff of the AcSB and is based on discussions during the Group’s meeting.

Comments made in relation to the application of IFRS Accounting Standards do not purport to be conclusions about acceptable or unacceptable application of IFRS Accounting Standards. Only the IASB or the IFRS Interpretations Committee can make such a determination.

ITEMS PRESENTED AND DISCUSSED AT THE MAY 12, 2026 MEETING

IFRS 18: Discussion of Recent Tentative Agenda Decisions Issued by the IFRS Interpretations Committee

Background

The Group discussed three topics for which the IFRS Interpretations Committee (the Interpretations Committee) issued tentative agenda decisions in November 2025. The Interpretations Committee discussed feedback on these tentative agenda decisions in March 2026. The purpose of the Group’s discussion was to raise awareness and determine whether there is any significant diversity in views or additional considerations.

Issue 1: Finalized Agenda Decision on the Classification of Gains and Losses on a Derivative Managing a Foreign Currency Exposure

Analysis

Background

At its November 2025 meeting, the Interpretations Committee published a tentative agenda decision about how an entity applies IFRS 18 Presentation and Disclosure in Financial Statements to classify any gain or loss on a derivative financial instrument in its consolidated statement of profit or loss. The derivative described in the tentative agenda decision is an external forward contract that an entity uses to manage the foreign currency risk of a net liability exposure but is not designated as a hedging instrument under IFRS 9 Financial Instruments.

Paragraph B72 of IFRS 18 indicates that the classification of an external derivative that has not been designated as a hedging instrument, but is used to manage identified risks, follows the same classification criteria as derivatives designated in hedging relationships outlined in paragraph B70. However, there are two exceptions noted in paragraph B72. They are:

If such classification would require grossing up of gains or losses; or
If such classification would involve undue cost or effort.

Under either exception, the entity would classify the gains and losses in the operating category.

The submission sought to determine whether, under a specific fact pattern, classifying the external derivative’s gains or losses in accordance with paragraph B70 of IFRS 18 would result in a grossing up of those gains or losses on the derivative as described in paragraph B72 and therefore would be classified in the operating category.

The submission

The fact pattern in the submission involved a parent entity (Parent P) with three subsidiaries: Subsidiary A, Subsidiary B and Treasury Entity that Parent P consolidates when preparing its consolidated financial statements. Subsidiaries A and B have the same functional currency (LC) and have the following loans denominated in a foreign currency (FC):

Subsidiary A issued a loan of FC100 to a third party (investing asset); and
Subsidiary B obtained a loan of FC120 from a different third party (financing liability).

Therefore, the group has a net liability exposure of FC20.

Applying paragraph 49 of IFRS 18, Parent P assesses that, for the purposes of its consolidated financial statements, it does not have a specified main business activity of investing in particular types of assets or of providing financing to customers. Consequently, in its consolidated financial statements, Parent P classifies the interest income from the investing asset in the investing category and the interest expense from the financing liability in the financing category. Applying paragraph B65 of IFRS 18, Parent P classifies any foreign exchange differences in the same category as the interest income and interest expense from those financial instruments.

To manage the foreign currency risk of the group’s net liability exposure, Treasury Entity enters into a forward contract with a third party at a notional amount of FC20 to sell local currency and buy foreign currency (external derivative).

Consistent with the group’s risk management policy, the purpose of the external derivative is to manage the identified foreign currency risk of the net liability exposure, not the group of gross exposures that make up the net exposure.

Parent P does not designate the external derivative as a hedging instrument under IFRS 9.

Parent P assesses that the undue cost or effort exemption in paragraph B72 of IFRS 18 is not applicable. In particular, Parent P has identified a clear link between the external derivative and the risk it is used to manage.

Treasury Entity also enters into intercompany derivatives (internal derivatives) with:

Subsidiary A at a notional amount of FC100, for Subsidiary A to sell foreign currency and buy local currency; and
Subsidiary B at a notional amount of FC120, for Subsidiary B to sell local currency and buy foreign currency.

The submission asked how the entity, applying IFRS 18, classifies any gain or loss arising from the external derivative in its consolidated statement of profit or loss.

Paragraphs B70-B76 of IFRS 18 provide application guidance an entity applies when classifying gains and losses on derivatives and designated hedging instruments.

Paragraph B72 of IFRS 18 requires an entity to classify gains and losses on a derivative that is not designated as a hedging instrument applying IFRS 9, but is used to manage identified risks, in the same category as the income and expenses affected by the risks that the derivative is used to manage. However, if doing so would require the grossing up of gains or losses or involve undue cost or effort, the entity is required to classify all gains or losses on the derivative in the operating category.

Paragraph B74 of IFRS 18 states that “grossing up of gains and losses” might arise from situations in which:

an entity uses financial instruments to manage the risks of a group of items with offsetting risk positions; and
the risks managed affect line items in more than one category of the statement of profit or loss.

Paragraph B75 of IFRS 18 provides an example in which grossing up of gains or losses on a derivative might arise:

For example, an entity may use a derivative to manage both the net foreign currency risk on revenue (classified in the operating category) and interest expenses (classified in the financing category). In such cases, the foreign exchange differences on the revenue are offset by the foreign exchange differences on the interest expenses and the gains or losses on the derivative. However, the entity classifies the foreign exchange differences on the revenue in a different category from the foreign exchange differences on the interest expenses. To present the gain or loss on the derivative in each category, an entity would need to present in each category a larger gain or loss than occurred on the derivative. Applying the requirements in paragraphs B70-B73, an entity shall not gross up the gains or losses in this manner and instead shall classify any gain or loss on the derivative in the operating category.

Key elements of the Interpretations Committee’s discussion

The Interpretations Committee’s analysis focused solely on the external derivatives and did not address the internal derivatives between the Treasury Entity and Subsidiaries A and B. This is partially because the submission did not ask questions about the internal derivatives but also because paragraph BC6.144 in the Basis for Conclusions on IFRS 9 indicates that risk mitigation is only relevant if the entity transfers a risk to a party outside the reporting entity. Leveraging that guidance, the Interpretations Committee decided not to address the internal derivatives.

The Interpretations Committee discussed how to apply paragraphs B70-B76 of IFRS 18. To do so, an entity first needs to identify the risk(s) a derivative is used to manage. This enables the entity to determine the categories of profit or loss that are affected by that risk and the resulting classification of gains or losses on that derivative. The concept of managing risks with derivatives that are not designated as hedging instruments, nor are they trading or speculative instruments, has been introduced in IFRS 18 for classification.

Paragraphs BC227-BC228 of the Basis for Conclusions on IFRS 18 state, in part, the IASB’s rationale for providing classification guidance for derivatives not designated as hedging instruments but used to manage exposures to identified risks:

An entity can also use a derivative to manage an identified risk without designating a hedging relationship for the purposes of IFRS 9. In many cases, the IASB expects that an entity can identify the link between the derivative and the risk it uses the derivative to manage because entities typically enter into derivatives in accordance with approved risk management policies. Risk managers usually monitor and report internally on whether derivatives continue to mitigate the risks being managed. Accordingly, an entity would typically have the information necessary to determine the link between a derivative and the risk the entity uses the derivative to manage. Consequently, the IASB concluded that classifying gains or losses on other derivatives used to manage exposures to identified risks using the same approach as for gains or losses on designated hedging instruments would provide useful information about an entity’s risk management activities.

However, stakeholder feedback revealed that, in some cases, identifying gains or losses affected by the risk(s) managed using non-designated derivatives might involve undue cost or effort. For example, an entity’s central treasury function might be the counterparty to internal derivatives used for risk management, which are then “externalised” on a net exposure basis. In this example, systems and processes might require changes to be able to identify the gains or losses on the external derivatives that would be applicable to each of the categories. In such cases, the IASB decided to require an entity to classify gains and losses in the operating category

The Interpretations Committee observed that entities typically enter into derivatives used to manage identified risks in accordance with their approved risk management policies. Therefore, an entity is generally expected to be able to identify the risk managed using an external derivative based on facts and circumstances and its approved risk management policy. This appears to implicitly leverage some of the IASB’s thinking outlined in the Basis for Conclusions paragraphs above.

In the fact pattern described in the submission, the group has an approved risk management policy that permitted the use of an external derivative to manage the foreign currency risk of the net liability exposure, not the gross exposures (the investing asset and the financing liability).

In the fact pattern described in the submission, Parent P, after determining it does not have any specified main business activities, classifies foreign exchange differences on financial liabilities in the financing category of its consolidated statement of profit or loss.

The entity used the external derivative to manage foreign currency risk of a net liability exposure. Therefore, per the approved risk management policies, applying paragraph B72 of IFRS 18, Parent P is required to classify any gain or loss on the external derivative in the financing category of its consolidated statement of profit or loss, unless doing so would require the grossing up of gains and losses or involve undue cost or effort. Per the fact pattern, Parent P assessed that the undue cost or effort exemption is not applicable.

The agenda decision suggests that the entity’s approved risk management policies impact the ability for the gains or losses on an external derivative used to manage identified risks to be eligible for classification in the same category as the related identified risk managed by the derivative.

In the fact pattern in the submission, the net liability position is derived from a financial asset for which income and expenses are classified in the investing category and from a financial liability for which income and expenses are classified in financing category. The primary issue is whether, under this fact pattern, managing the risk of a net liability position arising from a specifically identifiable foreign currency denominated financial asset and a (larger) specifically identifiable foreign currency denominated financial liability would be considered grossing up of gains and losses on a derivative.

Based on the requirements in paragraphs B74-B75 of IFRS 18, the Interpretations Committee observed that the grossing up of gains and losses on a derivative has two implications:

It does not arise in situations in which an entity manages an identified risk which affects line items in a single category of the statement of profit or loss. In this case, the identified risk is the FC20 net liability for which income and expenses would be solely classified in the financing category.
It might arise in situations in which an entity manages the risks of a group of items with offsetting risk positions using a derivative and those risks affect line items in more than one category of the statement of profit or loss. That is because, to classify the gain or loss on the derivative in each of the categories affected, the entity would need to present in each category a larger gain or loss than occurred on the derivative. Such an outcome is prohibited by paragraphs B70 and B72 of IFRS 18. For example, if the group’s risk management policy was to instead use the external derivative to manage the foreign currency risk of both the investing asset and the financing liability on a gross basis. These risks would affect line items in the investing category and in the financing category of the consolidated statement of profit or loss. Consequently, classifying gains or losses on the external derivative in these categories would have required the grossing up of gains or losses on the derivative, which is prohibited by paragraph B72 of IFRS 18. (emphasis added)

The Interpretations Committee observed that, in the fact pattern, the entity uses the external derivative to manage only the net liability foreign currency exposure, which affects a single category of the consolidated statement of profit or loss – the financing category. Therefore, classifying gains or losses on the external derivative in the financing category would not require the grossing up of such gains or losses. As a result, the prohibition in paragraph B72 of IFRS 18 would not apply.

Consequently, the Interpretations Committee concluded that in the fact pattern, the entity is required to classify any gain or loss on the external derivative in the same category as the income and expenses affected by the risks the derivative is used to manage, which is the financing category of its consolidated statement of profit or loss.

The Interpretations Committee concluded that the principles and requirements in IFRS Accounting Standards provide an adequate basis for the classification of gains or losses on a derivative – in accordance with an entity’s risk management policy – that is used to manage an identified risk but is not designated as a hedging instrument under IFRS 9. So, the Interpretations Committee decided not to add a standard setting project to the work plan.

The Group’s Discussion

The Group noted that the agenda decision highlights the importance of entities clearly documenting their risk management policies and establishing a clear link between derivatives and identified risks to support income statement classification under IFRS 18. Some Group members think this might represent a shift in practice for derivatives that are not designated as hedges as some entities might need more robust and explicit documentation than they historically maintained. One Group member noted that for larger or more complex entities, such as those managing exposure to multiple foreign currencies, it may be even more onerous to meet the documentation requirements. Another Group member thought it might be challenging for entities to support classification outside the operating category for existing arrangements when historical documentation is incomplete or absent. Overall, the discussion highlighted that judgment will be required, and the nature and extent of supporting evidence may vary depending on the entity’s facts and circumstances.

Issue 2: Finalized Agenda Decision on the Scope of the Requirement to Disclose Expenses by Nature

Analysis

Background

At its November 2025 meeting, the Interpretations Committee published a tentative agenda decision about the scope of the requirements in paragraph 83 of IFRS 18. The paragraph requires an entity that presents one or more line items comprising expenses classified by function in the operating category of the statement of profit or loss to also disclose in a single note:

the total for each of depreciation, amortization, employee benefits, impairment of non-financial assets (and reversals) and write-downs of inventories (and reversals); and
for each total listed in (a):
1. the amount related to each line item in the operating category; and
2. a list of any line items outside the operating category that also include amounts relating to the total.

The submission sought to determine whether the requirements in paragraph 83 of IFRS 18 apply when an entity presents any expense classified by function in the operating category of the statement of profit or loss, including expenses in paragraph 75(b)-(c) of IFRS 18.

The submission

The submission asks whether the requirements in paragraph 83 of IFRS 18 apply:

only when an entity presents operating expenses listed in paragraph 75(a)(ii) of IFRS 18 by function in the operating category of the statement of profit or loss; or
when an entity presents any expense by function in the operating category of the statement of profit or loss, including expenses listed in paragraph 75(b)-(c) of IFRS 18. The request says these expenses might include amounts that have been recognized as part of the carrying amount of an asset, for example, an insurance service expense recognized in the statement of profit or loss might include the amortization of insurance acquisition costs that were previously capitalized as part of insurance contract assets.

Paragraph 75 of IFRS 18 states, in part:

An entity shall present in the statement of profit or loss line items for (see paragraph B77):

amounts required by this Standard, namely:

…

ii. operating expenses, presenting separately line items as required by paragraphs 78 and 82(a);

…

amounts required by IFRS 9, namely:
1. interest revenue calculated using the effective interest method;
2. impairment losses (including reversals of impairment losses or impairment gains) determined in accordance with Section 5.5 of IFRS 9;
amounts required by IFRS 17, namely:
1. insurance revenue;
2. insurance service expenses from contracts issued within the scope of IFRS 17;
3. income or expenses from reinsurance contracts held;
4. insurance finance income or expenses from contracts issued within the scope of IFRS 17; and
5. finance income or expenses from reinsurance contracts held.

Paragraph 78 of IFRS 18 states:

In the operating category of the statement of profit or loss, an entity shall classify and present expenses in line items in a way that provides the most useful structured summary of its expenses, using one or both of these characteristics (see paragraphs B80–B85):

the nature of expenses; or
the function of the expenses within the entity.

Paragraph 83 of IFRS 18 states:

An entity that presents one or more line items comprising expenses classified by function in the operating category of the statement of profit or loss shall also disclose in a single note:

the total for each of:
1. depreciation, comprising the amounts required to be disclosed by paragraph 73(e)(vii) of IAS 16 Property, Plant and Equipment, paragraph 79(d)(iv) of IAS 40 Investment Property and paragraph 53(a) of IFRS 16 Leases;
2. amortisation, comprising the amount required to be disclosed by paragraph 118(e)(vi) of IAS 38 Intangible Assets;
3. employee benefits, comprising the amount for employee benefits recognised by an entity applying IAS 19 Employee Benefits and the amount for services received from employees recognised by an entity applying IFRS 2 Share-based Payment;
4. impairment losses and reversals of impairment losses, comprising the amounts required to be disclosed by paragraphs 126(a) and 126(b) of IAS 36 Impairment of Assets; and
5. write-downs and reversals of write-downs of inventories, comprising the amounts required to be disclosed by paragraphs 36(e) and 36(f) of IAS 2 [Inventories]; and
for each total listed in (a)(i)-(v):
1. the amount related to each line item in the operating category (see paragraph B84); and
2. a list of any line items outside the operating category that also include amounts relating to the total.

Key elements of the Interpretations Committee’s discussion

The Interpretations Committee observed that paragraph 83 of IFRS 18 contains no explicit exceptions or exclusions. That means, for example, that the reason for classifying an expense by function (i.e., classifying an expense by function applying an entity’s judgment or because of a requirement in an IFRS Accounting Standard) is irrelevant in determining whether an entity is required to apply paragraph 83.

Therefore, the Interpretations Committee concluded that paragraph 83 of IFRS 18 applies when an entity presents any line item comprising expenses classified by function in the operating category of the statement of profit or loss, including expenses listed in paragraph 75(b)-(c) of IFRS 18 that are classified by function.

The Interpretations Committee observed that, as paragraph B84 of IFRS 18 states, the amounts disclosed in accordance with paragraph 83 of IFRS 18 need not be the amounts recognized as an expense in the period. The amounts disclosed could include amounts that have been recognized as part of the carrying amount of an asset. If an entity applying paragraph 83(b) of IFRS 18 discloses amounts that are not the amounts recognized as an expense in the period, the entity is required to provide a qualitative explanation of that fact, identifying the assets involved. Note 1 in paragraph IE7 of the Illustrative Examples for IFRS 18 shows the application of the applicable disclosure requirements, including paragraph B84 of IFRS 18.

The Group’s Discussion

Several Group members noted that the disclosure of expenses by nature may be challenging to prepare, particularly for more complex entities. Therefore, they suggested that entities should plan early and begin implementing any necessary changes as soon as possible to ensure they have the systems and processes in place to capture the necessary information to provide comparative disclosures. One Group member highlighted that entities should review all applicable guidance to understand the requirements, including paragraph 74 of IFRS 18, paragraph B84 in the application guidance, and paragraph IE7 in Part I of the Illustrative Examples that accompany IFRS 18. Some Group members noted that the disclosure of expenses by nature might not reconcile to an entity’s statement of profit or loss, which may not be intuitive to users. They noted that entities are required to explain these differences qualitatively and should consider additional quantitative disclosures.

Issue 3: Presentation of Taxes or Other Charges that Are Not Income Taxes within the Scope of IAS 12 Income Taxes

Analysis

Background

At its November 2025 meeting, the Interpretations Committee discussed whether an entity applying IFRS 18 is permitted to present taxes or other charges that are not income taxes within the scope of IAS 12:

in the “income tax expense or income” line item of the statement of profit or loss required by paragraph 75(a)(iv) of IFRS 18; or
in the income taxes category of the statement of profit or loss.

The submission

The Interpretations Committee was asked to address this issue because it was informed of different views about whether an entity may present taxes or other charges that are not income taxes within the scope of IAS 12 in the line item “income tax expense or income” required by paragraph 75(a)(iv) of IFRS 18 or as an additional line item in the income taxes category of the statement of profit or loss. Examples of charges that this interpretation may impact include tonnage taxes, production-based royalty payments and hybrid taxes, such as zakat.

Key elements of the Interpretations Committee’s discussion

The Interpretations Committee previously discussed tonnage taxes and production-based royalty payments, and issued the following agenda decisions in prior years under current IFRS Accounting Standards:

Presentation of payments on non-income taxes (IAS 1 and IAS 12); and
Classification of tonnage taxes (IAS 12).

The Interpretations Committee subsequently assessed both of these previously issued agenda decisions to determine if any amendments were necessary to align them with IFRS 18. The proposed amendments to those agenda decisions are outside the scope of this discussion. However, it is important to be aware that various Interpretations Committee agenda decisions have been (or will be) amended or withdrawn to conform with IFRS 18.

The Interpretations Committee’s discussion focused on zakat, which is a hybrid tax. Although zakat is not used in Canada, it is a charge levied by certain governments on entities operating in those countries, including but not limited to Saudi Arabia. Zakat is calculated using a hybrid model, with net income or net assets-based measures used as a basis of its calculation.

Paragraph 67 of IFRS 18 states: “An entity shall classify in the income taxes category tax expense or tax income that is included in the statement of profit or loss applying IAS 12 Income Taxes, and any related foreign exchange differences.”

Paragraph 75(a)(iv) of IFRS 18 requires an entity to present in the statement of profit or loss line items for amounts required by the standard – namely, income tax expense or income.

The Interpretations Committee concluded that, applying IFRS 18, an entity is not permitted to present taxes or other charges that are not tax income or tax expense applying IAS 12:

in the income tax expense or income line item of the statement of profit or loss required by paragraph 75(a)(iv) of IFRS 18; or
in the income taxes category of the statement of profit or loss.

The Interpretations Committee also concluded that the principles and requirements in IFRS Accounting Standards provide an adequate basis for an entity applying IFRS 18 to determine how it presents in the statement of profit or loss taxes or other charges that are not tax expense or tax income applying IAS 12.

During its discussions, the Interpretations Committee considered the implications of the tentative agenda decision for hybrid taxes like zakat. While a majority of the Interpretations Committee members agreed that the current wording of IFRS 18 enabled them to reach the conclusion noted above, the Interpretations Committee recommended that the IASB consider whether a limited-scope project may be necessary to address the accounting for hybrid taxes like zakat.

The IASB has not discussed the tentative agenda decision yet, so the final outcome is not yet known. The IASB may approve the tentative agenda decision or defer its approval. Any decision the IASB makes regarding the Interpretations Committee’s recommendation may or may not be tied to the decision around whether or not to finalize the tentative agenda decision. The purpose of this discussion was not to discuss the IASB’s possible next steps but to raise awareness of this matter and its status.

The Group’s Discussion

Some Group members noted that paragraph 67 of IFRS 18 requires entities to classify in the income taxes category tax expense or tax income that is included in the statement of profit or loss applying IAS 12. They observed that entities sometimes apply IAS 12 by analogy to items that are not within its scope when no IFRS Accounting Standard specifically applies. Since paragraph 67 of IFRS 18 refers to amounts included in the statement of profit or loss “applying” IAS 12 rather than “within the scope” of IAS 12, the Group members noted that entities should include in the income taxes category amounts for which an entity applies IAS 12 by analogy. A common example in Canada is investment tax credits (ITCs). Group members noted that entities typically apply either IAS 12 or IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, depending on the facts and circumstances. A Group member noted that when an entity applies IAS 20 to account for an ITC, it should classify the income and expenses related to the ITC in the operating category. Some Group members also observed that this may require entities to reassess historical classifications for certain tax-related items. One Group member noted this tentative agenda decision highlights that the operating category is a residual category under IFRS 18 and that any expense that does not meet the criteria to be included in another category must be classified in the operating category.

Overall, the Group’s discussion raised awareness of three topics for which the Interpretations Committee issued tentative agenda decisions in November 2025. No further actions were recommended to the AcSB.

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IFRS 18: Entities with Specified Main Business Activities

Background

IFRS 18 Presentation and Disclosure in Financial Statements requires entities to classify income and expenses into one of five categories in the statement of profit or loss: operating, investing, financing, income taxes and discontinued operations. It specifies which items of income and expenses entities should recognize in the investing and financing categories; however, when an entity has a “specified main business activity,” it will be required or permitted to classify some items of income and expenses in the operating category (paragraph 50 of IFRS 18). The two types of business activities that entities need to assess to determine whether they are a “specified main business activity” are:

investing in particular types of assets (“investing in assets”); and
providing financing to customers (paragraph 49 of IFRS 18).

Therefore, an entity needs to determine whether it undertakes one of the specified business activities and whether that activity is a main business activity of the entity. This determination can significantly affect the presentation of income and expenses in the financial statements, as it changes which items of income and expenses entities should include in the operating category.

Investing in assets

Paragraph 53 of IFRS 18 notes that entities should classify income and expenses from the following types of assets in the investing category unless it invests in these assets as a specified main business activity:

investments in joint ventures, associates and unconsolidated subsidiaries (the Group will only consider joint ventures and associates for this discussion as these types of investments are widespread among Canadian entities. Unconsolidated subsidiaries apply primarily to investment entities under IFRS 10 Consolidated Financial Statements and entities that are permitted to, and do, prepare non-consolidated financial statements in accordance with IAS 27 Separate Financial Statements);
cash and cash equivalents; and
other assets that generate a return individually and largely independently of the entity’s other resources (hereafter referred to as “independent assets”).

Paragraph 55 of IFRS 18 notes that entities should classify income and expenses from joint ventures and associates that it invests in as a main business activity:

in the investing category if the assets are accounted for applying the equity method; or
in the operating category if the assets are not accounted for applying the equity method.

Paragraph 56 of IFRS 18 notes that entities should classify income and expenses from cash and cash equivalents in the investing category unless:

it invests as a main business activity in financial assets within the scope of paragraph 53(c) – in which case it should classify the income and expenses in the operating category.
it does not meet the requirements in (a) but provides financing to customers as a main business activity – in which case it should classify:
1. the income and expenses from cash and cash equivalents that relate to providing financing to customers, for example cash and cash equivalents held for related regulatory requirements – in the operating category.
2. the income and expenses from cash and cash equivalents that do not relate to providing financing to customers – by applying an accounting policy choice to classify the income and expenses specified in paragraph 54 in the operating category or the investing category. The choice of accounting policy should be consistent with that made by the entity for the purpose of the related accounting policy for income and expenses from liabilities in paragraph 65(a)(ii).

Paragraph 57 of IFRS 18 notes that if an entity applying paragraph 56(b) cannot distinguish between the cash and cash equivalents described in paragraphs 56(b)(i)-(ii), it should apply the accounting policy choice in paragraph 56(b)(ii) to classify income and expenses from all cash and cash equivalents in the operating category.

Paragraph 58 of IFRS 18 notes that entities should classify income and expenses from independent assets in the operating category if the entity invests in them as a main business activity.

Normally, it is straightforward to identify whether the entity invests in joint ventures and associates or owns cash and cash equivalents. However, it may be challenging to identify some independent assets. This assessment is important because, if the assets are not independent, the entity does not need to assess whether investing in them is a main business activity, as the related income and expenses would be classified in the operating category. IFRS 18 does not require an entity to assess all its main business activities; rather, it requires only an assessment of whether the specified business activities are main business activities.

Paragraph B46 of IFRS 18 states that independent assets will “typically include”:

debt or equity investments, and
investment properties including receivables for rent generated by those properties.

Paragraph B48 of IFRS 18 provides examples of assets that do not typically meet this definition because they are used to produce or supply goods or services. They include:

property plant and equipment;
assets that arise from the production or supply of goods and services for which the income and expenses are classified in the operating category; an example of this is trade receivables; and
loans to customers, if providing financing to customers is a main business activity.

Providing financing to customers

In determining what income and expenses to classify in the financing category, paragraph 59 of IFRS 18 requires an entity to distinguish between liabilities that arise from transactions that involve only the raising of finance (referred to as “Type 1” liabilities in this discussion) and liabilities other than those that involve only the raising of finance (referred to as “Type 2” liabilities in this discussion). Paragraph B50 of IFRS 18 explains how to identify Type 1 liabilities:

In such transactions, an entity:

receives finance in the form of cash, or an extinguishment of a financial liability, or receipt of the entity’s own equity instruments; and
at a later date, will return in exchange cash or its own equity instruments.

When an entity has a main business activity of providing financing to customers, it should present all of the specified income and expenses from Type 1 liabilities in the operating category when the liability relates to providing financing to customers. When the liability does not relate to providing financing to customers or the entity cannot distinguish between liabilities that are and those that are not related to providing financing to customers, the entity has an accounting policy choice to present the specified income and expenses in the operating category or the financing category. This policy is consistent with that made for cash and cash equivalents. However, for Type 2 liabilities there is no change to the presentation of the related income and expenses. In other words, entities should recognize income and expenses related to interest and changes in interest rates in the financing category and other income and expenses in the operating category.

When is providing financing to customers a “main” business activity?

Paragraph B33 of IFRS 18 explains that whether investing in assets or providing financing to customers is a main business activity of an entity is a matter of fact and not merely an assertion. Management should use its judgment to assess whether investing in assets or providing financing to customers is a main business activity and that assessment should be based on evidence.

Paragraph B34 of IFRS 18 notes that investing in assets or providing financing to customers is likely to be a main business activity if the entity uses a subtotal that is similar to gross profit as an important measure of operating performance. So, if the entity uses the results of investing in assets or providing financing to customers as an indicator of operating performance, this indicates that such activities are main business activities of the entity. These subtotals could be used to explain operating performance externally or to assess and monitor operating performance internally.

Paragraph B36 of IFRS 18 notes that information about segments may provide evidence that investing in assets or providing financing to customers is a main business activity if an entity applies IFRS 8 Operating Segments. If a reportable segment comprises a single business activity, this indicates that the performance of the reportable segment is an important indicator of the entity's operating performance and that the business activity of the reportable segment is a main business activity of the entity. If an operating segment comprises a single business activity, this indicates that the business activity might be a main business activity of the entity if the performance of the operating segment is an important indicator of the entity's operating performance.

A specified main business activity of providing financing to customers includes consideration of whether the recipient is a customer. This implies that the action of providing financing is in the ordinary course of operations for the entity.

The determination of a main business activity must be made at the reporting-entity level. Therefore, the determination of whether an activity is a main business activity may be different when determined for a subsidiary than when determined for a consolidated group that includes the subsidiary among other businesses (paragraph B37 of IFRS 18).

Fact Pattern for Issue 1

Entity A is an asset management company that earns revenues from providing asset management services to other entities (asset management customers).
Depending on the arrangement, the asset management fees may be settled in cash or by delivery of equity instruments of the customer.
Entity A also makes investments in the equity securities of some of its asset management customers (usually up to 10 per cent). It is not required to do so under the asset management agreements, but it chooses to do so to obtain additional returns, strengthen the customer relationship and signal to third-party investors in the customers that it has “skin in the game.”
Entity A has determined that under IFRS 10 it does not control, and therefore does not consolidate, these customers.

Issue 1: Do the Equity Instruments in Entity A’s Customers Generate a Return Individually and Largely Independently from Entity A’s Other Resources?

Analysis

View 1: The securities generate a return individually and largely independently from Entity A’s other resources

Proponents of this view note that investments in equity securities can generate a return both individually and independently of an entity’s other resources because their returns are generated by dividends declared by the investee and changes in the fair value of the investee’s equity. In other words, the nature of these equity investments makes them individual assets. Paragraph B46 of IFRS 18 lists equity securities as an example of items that generate a return individually and largely independently of an entity’s other resources because they are separate financial instruments governed by contract. Therefore, proponents of this view think all equity securities meet the definition of individual assets regardless of how the entity obtained them. In this fact pattern, even though the asset manager may have the ability to influence the fair value of the equity instruments (and therefore its returns), it is not obligated to hold these instruments as part of its customer contracts. Therefore, the equity securities can generate a return individually and independently of its other resources.

Under this view, Entity A would classify income and expenses relating to the equity instruments in its customers in the investing category unless it can demonstrate that it invests in these assets as a main business activity.

View 2: The securities do not generate a return individually and largely independently from Entity A’s other resources

Proponents of this view note that IFRS 18 does not specify that the assets must be capable of generating returns individually and largely independently of an entity’s other resources. It specifies that they do generate returns individually and largely independently of its other resources. Therefore, Entity A must consider all facts and circumstances about how it generates returns from the assets. In this fact pattern, the asset management contract permits the entity to influence the fair value of the investees through the provision of asset management services. As a result, any returns generated are not independent of Entity A’s other resources because Entity A impacts them using its asset management resources. This applies to both the equity securities it obtains through providing services and those it invests in voluntarily. Under this view, any investments in equity securities of entities that are not Entity A’s asset management customers would be considered independent assets.

Under this view, Entity A would classify income and expenses relating to these assets in the operating category.

View 3: The investments that Entity A purchases voluntarily generate a return individually and largely independently from its other resources. The equity investments that Entity A obtains through providing goods and services to customers do not.

Proponents of this view note that the equity securities Entity A obtains as consideration for providing asset management services to its customers are assets that arose from the provision of services. Entity A would recognize revenue and expenses from providing these services in the operating category. Therefore, they think Entity A should also recognize the returns related to these equity securities in the operating category. However, the equity investments Entity A purchases voluntarily did not arise from the provision of services. For the reasons highlighted in View 1, those equity securities would be considered independent assets.

Under this view, Entity A would recognize income and expenses from the investments it obtains voluntarily in the investing category, unless it can demonstrate it invests in these assets as a main business activity. It would recognize income and expenses from investments it obtains through providing goods and services to customers in the operating category.

This view would require Entity A to carefully track its equity investments to distinguish between those that it obtained as consideration for services and those that it purchased voluntarily, which may be challenging.

The Group’s Discussion

Most Group members supported View 1 as they think equity instruments inherently generate returns individually and largely independently of an entity’s other resources regardless of how an entity obtained them. Several Group members noted that, depending on the facts and circumstances, they might support View 2. For example, if Entity A were required to hold the equity securities until the fund is liquidated or until a future vesting date, this might indicate that the instruments do not generate returns independently of its asset management resources. Some Group members noted that they would also consider how much influence Entity A has over its asset management customers’ returns. They noted that evidence of a direct link between Entity A’s actions and its customers’ returns would provide additional support for View 2. Some Group members emphasized that entities should clearly disclose any management judgment used to support View 2. The Group did not support View 3 as they thought the source of the securities was irrelevant when assessing whether they generate returns individually and largely independently of the entity’s other resources.

Issue 2: What Business Activities Result in an Entity Providing Financing to Customers?

Analysis

IFRS 18 does not define “providing financing to customers,” but it does provide examples of entities that might provide financing to customers as a main business activity. These include banks and other lending institutions, entities that provide financing to customers to enable them to buy the entity’s products, and lessors that provide financing to customers in finance leases. While these examples relate to assets that arise from applying different IFRS Accounting Standards (i.e., IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases), the respective standards all require the entity to recognize interest income. However, only paragraph 6 of IFRS 15 defines a “customer” as “a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.” One might interpret “goods and services” more broadly under IFRS 16 and IFRS 9 to include access to loans when this is part of the entity’s ordinary activities. However, IFRS Accounting Standards do not provide clear guidance on this point, including when an activity might be an “ordinary activity.”

It might be important to distinguish between entities that provide financing to other entities through loans, including to related parties such as joint ventures, associates or entities under common control, and those that provide financing to customers.

The Group discussed how an entity determines whether it provides financing to customers and whether the recipient of financing is a "customer."

What business activities result in an entity providing financing to customers - operating leases?

The IFRS Interpretations Committee plans to discuss a submission on a related topic at an upcoming meeting (see Assessment of a specified main business activity for a manufacturer-lessor). Therefore, the Group will not discuss this topic.

The Group’s Discussion

The Group thought assessing whether an entity provides financing to customers should not be limited to customers as defined in IFRS 15. One Group member thought IFRS 18 would have explicitly referred to that definition if the IASB intended to include such a restriction. Instead, they think entities should consider the nature of its activities when determining whether it provides financing to customers.

One Group member also noted that in certain industries, such as telecommunications and midstream oil and gas, customer contracts commonly contain embedded leases. In these cases, it may be more straightforward to conclude that the entity is providing financing to a customer, as the customer relationship is already established under the IFRS 15 component of the contract.

Fact Pattern for Issue 3

Company X is a consolidated group that is a Canadian public company with several subsidiaries, including Subsidiary Y and Subsidiary Z. Subsidiary Y sells a range of supplies to the construction industry.
Subsidiary Z provides loans to Subsidiary Y’s customers to help facilitate purchases of goods from Subsidiary Y. Subsidiary Z recognizes interest income on the loans, along with an appropriate provision for expected credit losses under IFRS 9. Subsidiary Z funds the provision of these loans to customers through a mix of external and intercompany borrowing from Company X, both received through cash draws.
Subsidiary Z is a wholly owned subsidiary of Company X and is not in scope of IFRS 8. Therefore, it has not determined operating or reportable segments for such purposes. It does not produce external reporting in public communications itself. However, Subsidiary Z’s management monitors the company’s performance on a net interest margin basis internally as the loans to Subsidiary Y’s customers are substantially all of its activities. In addition, Subsidiary Z presents net interest margin in the income statement of its stand-alone financial statements and in communications with ratings agencies and other parties that lend money to Subsidiary Z.
Subsidiary Z concludes that it has a main business activity of providing financing to customers. As a result, the loans are not considered to be independent assets. Subsidiary Z recognizes income and expenses from those loans and interest expense on external and intercompany borrowing in the operating category.
Company X consolidates Subsidiary Z. The interest revenue earned within Subsidiary Z represents about 3 per cent of the consolidated revenues of Company X. When applying IFRS 8, Subsidiary Y and Subsidiary Z are a single operating segment for Company X based on an assessment of how the chief operating decision maker assesses performance and makes resource allocation decisions.
In external reporting (i.e., management discussion and analysis (MD&A)), Company X discloses net interest margin specifically relating to Subsidiary Z as a performance measure, consistent with the information provided to Subsidiary Z’s lenders and ratings agencies. However, it does not present net interest margin as a performance measure for Company X as a whole; that is, it does not include other interest income or interest expense from Subsidiary Y or other subsidiaries. Net interest margin is not presented on the consolidated income statement of Company X, in the segment note nor in any other financial statement note.

Issue 3: Is Providing Financing to Customers a Main Business Activity for Company X?

Analysis

View 1: Yes, Company X provides financing to customers as a main business activity

Proponents of this view note that Subsidiary Z provides financing to customers, which are taking the output of the entity’s ordinary activities. Subsidiary Z’s activities do not constitute a reportable segment or operating segment, and so that indicator is not met. However, the results of Subsidiary Z’s net interest margin are reported in Company X’s MD&A, and Subsidiary Z’s management uses them internally. This indicates that this subtotal is used to explain operating performance externally and to monitor operating performance internally.

View 2: No, Company X does not provide financing to customers as a main business activity

Proponents of this view note that, while providing financing to customers is a main business activity of Subsidiary Z, IFRS 18 is clear that the assessment must be made at the reporting-entity level. Unlike Subsidiary Z, which presents a net interest margin in its financial statements, Company X does not. Company X does not consider Subsidiary Z to be an operating segment, indicating that it does not monitor net interest margin or performance for the subsidiary internally, even though that information is available from Subsidiary Z.

Proponents of this view also think the reason Company X discloses the net interest margin of Subsidiary Z in its MD&A is relevant. If the purpose is to align disclosure with Subsidiary Z’s reporting, rather than to communicate performance for Company X as a whole, then the indicator in paragraph B35 of IFRS 18 is not met. Furthermore, since Subsidiary Z contributes to a very small proportion of Company X’s total revenues, its performance is unlikely to have a material impact on Company X’s overall performance. This indicates that it is not a “main” business activity of Company X.

The Group’s Discussion

The Group noted that assessing whether providing financing to customers is a specified main business activity requires judgment based on specific facts and circumstances. Some Group members emphasized that an entity’s analysis of whether it provides financing to customers as a main business activity should focus on the entity’s overall business model and how management views and operates the business. They raised some factors that management should consider, including the importance of the financing activity to the entity’s overall business strategy, its inclusion in internal reporting, and the prominence of the activity in public disclosures.

Several Group members noted that quantitative materiality alone is not determinative, and that entities should also consider qualitative factors. Some important qualitative factors Group members raised included the role of financing in driving demand for the entity’s products, its integration with other business activities, and its importance to the entity’s overall operating performance. One Group member also noted that entities should not apply the indicators in the standard as a checklist. Rather, they noted that entities may need to weigh potentially conflicting evidence. They noted that entities should clearly document and disclose the judgments made in determining whether providing financing to customers is a specified main business activity.

Overall, the Group’s discussion raised awareness of factors an entity should consider when determining whether it has a specified main business activity. Given the significant judgment that might be involved in making this determination, the Group encouraged entities to begin analyzing their business activities as soon as possible. No further actions were recommended to the AcSB.

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Financial Reporting Considerations Arising from Current Global Economic and Geopolitical Developments

Background – Tariff Developments and Refunds

According to EY’s March 2026 IFRS Resource “Accounting considerations for IEEPA tariffs and potential recoveries,” the U.S. Supreme Court ruled on February 20, 2026, that the U.S. International Emergency Economic Powers Act (IEEPA) does not provide the executive branch of government with the authority to impose tariffs. The ruling invalidated tariffs U.S. President Donald Trump imposed in April 2025 under the IEEPA on goods from Canada, Mexico, and China, as well as other global and country-specific tariffs. The ruling also invalidated the potential for tariffs in accordance with executive orders related to Venezuela, Russia, Iran, Brazil, and Cuba. The Supreme Court did not decide whether, and to what extent, importers may claim refunds of IEEPA tariffs already paid. Tariffs imposed by the administration under Section 232 of the Trade Expansion Act of 1962 or Section 301 of the Trade Act of 1974 remain in place.

Further to the EY IFRS Resource “Accounting considerations for IEEPA tariffs and potential recoveries,” the Trump administration has already invoked other available authorities to impose tariffs and maintain continuity in its tariff policy. Following the ruling, the 10 per cent global tariffs imposed by President Trump on most U.S. imports fall under Section 122 of the Trade Act of 1974, which allows the president to adjust import duties for up to 150 days in response to trade imbalances. In addition to the tariff measures imposed under Sections 122, 232, and 301, other authorities include Section 338 of the Trade Act of 1930, which allows the president to increase tariffs up to 50 per cent or block imports if a trading partner is discriminating against U.S. goods or commerce.

On March 4, 2026, the U.S. Court of International Trade ordered the U.S. Customs and Border Protection (CBP) to progress with the IEEPA tariffs refund process, noting, according to EY’s March 2026 IFRS Resource, that “all importers of record whose entries were subject to IEEPA duties are entitled to the benefit” of the Supreme Court ruling that tariffs imposed under the IEEPA are unlawful. In a sworn declaration filed on March 6, 2026, U.S. CBP Executive Director for Trade Programs detailed, for the CIT’s consideration, why immediate widescale resolution through liquidation (CBP’s initial final determination of duties owed) and reliquidation (the statutory reopening and revision of entries that had already been finalized to remove duties imposed under the IEEPA) is operationally infeasible and described a new Automated Commercial Environment (ACE) refund process CBP aims to deploy within 45 days.

In a declaration filed on March 31, 2026, with the CIT, CBP reported that it had made material progress in developing a new Consolidated Administration and Processing of Entries (CAPE) functionality within ACE. This functionality enables the calculation and processing of refunds of tariffs imposed under the IEEPA. This CBP update provides more clarity on how the IEEPA refund process will operate (see the CBP webpage, “International Emergency Economic Powers Act (IEEPA) Duty Refunds”).

According to the CBP IEEPA Duty Refunds webpage, on April 10, 2026, CBP announced that Phase 1 of the CAPE functionality would be operational in the ACE portal on April 20, 2026, enabling the processing of IEEPA duty refunds for entries that are either still open and not finalized (unliquidated) or have been finalized within the past 80 days. Entries that were liquidated more than 80 days prior are excluded from Phase 1 and are expected to be addressed in subsequent phases. Phase 1 refunds began processing as of April 20, 2026. At the time of this discussion, CBP has not announced a timetable for the deployment of Phase 2 of the CAPE functionality.

Issue 1: Is It Appropriate to Recognize an Asset at a March 31, 2026, Reporting Date for Potential IEEPA Tariff Recoveries?

Analysis

The recent Supreme Court decision limiting the use of IEEPA tariffs gave rise to potential recoveries of amounts previously paid on imported goods. These developments create the possibility of future economic benefits; however, realization depends on the implementation and operation of government-administered refund mechanisms and the entity’s ability to successfully submit and have claims accepted. At a March 31, 2026, reporting date, the refund process was still in development. The process was expected to be implemented in phases and was still subject to some administrative and legal uncertainty. Accordingly, while entities may expect potential recoveries, the existence and enforceability of a right to receive cash from a government authority for previously paid IEEPA tariffs may not have been firmly established in all cases as at March 31, 2026.

After March 31, 2026, CBP announced, as outlined on its IEEPA Duty Refunds webpage, that Phase 1 of the CAPE functionality would go live on April 20, 2026. The processing of Phase 1 refunds commenced as of that date. While the launch of Phase 1 represents a significant development in the implementation of the refund mechanism, it occurred after the reporting period.

View 1: At March 31, 2026, the tariff relief represents a contingent asset within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and is recognized only when the inflow of economic benefit is virtually certain

Proponents of this view note that the potential recovery of IEEPA tariffs arises from past events but does not give rise to a present asset at the reporting date, as the existence of any right to recovery depends on uncertain future events that are outside the entity’s control.

IAS 37 defines a contingent asset as a possible asset whose existence will be confirmed only by the occurrence or non‑occurrence of one or more uncertain future events. It establishes a high recognition threshold to prevent the recognition of income that may never be realized. Accordingly, entities do not recognize and record contingent assets until the inflow of economic benefits becomes virtually certain.

Proponents of this view think the Supreme Court decision, on its own, does not establish a sufficiently clear and enforceable right to a refund of tariffs previously paid. As at March 31, 2026, the Supreme Court had not ruled on refund entitlements, and further judicial and administrative steps remained ongoing. Although on March 4, 2026, the Court of International Trade directed CBP to proceed with a refund process and CBP outlined, through sworn declarations filed on March 6 and March 31, 2026, a proposed phased refund mechanism, that mechanism had not yet been implemented. Consequently, uncertainty remained at the reporting date regarding the timing, scope, and enforceability of any refund or reimbursement process. In particular, at March 31, 2026, uncertainty remains regarding the outcome of further judicial proceedings, the risk of appeal, and the design, approval, and implementation of any refund or reimbursement mechanism by government authorities.

At March 31, 2026, the potential tariff recovery is viewed as a possible asset whose realization depends on future legal, regulatory, and administrative actions. Under this view, entities should not recognize any asset until the refund mechanism is substantively in place and the entity’s entitlement to recovery is no longer contingent. Nevertheless, when the potential tariff recovery is material, IAS 37 requires transparent disclosures describing the nature of the contingent asset, the significant judgments and assumptions applied, and the key factors that may affect the amount, timing, or likelihood of recovery. When an entity assesses an inflow of economic benefits as probable, paragraph 89 of IAS 37 further requires disclosure of an estimate of the financial effect, to the extent practicable. Such disclosures must be carefully framed to avoid giving misleading indications regarding the likelihood or timing of income.

View 2: At March 31, 2026, the tariff relief is an asset because it represents a right to a refund. This asset falls outside the scope of any existing IFRS Accounting Standard. Therefore, entities should apply the Conceptual Framework for Financial Reporting (Conceptual Framework) and recognize an asset when the inflow of economic benefits is probable.

Proponents of this view think the potential recovery of IEEPA tariffs represents an asset at the reporting date because their recovery was triggered by past events. The Conceptual Framework defines an asset as a “present economic resource controlled by the entity as a result of past events.” It defines an economic resource as a “right that has the potential to produce economic benefits.” Proponents of this view therefore think this meets the definition of an asset because the contingent‑asset guidance in IAS 37 does not apply.

Proponents of this view think the Supreme Court decision, together with subsequent developments up until March 31, 2026, provide a sufficient legal basis to conclude that entities have obtained a right to a refund of tariffs previously paid. In their view, any remaining uncertainty relates to the likelihood, timing, and mechanics of recovery, rather than to the existence of the right itself.

Proponents of this view think the potential tariff recovery is a present asset rather than a possible asset. Under this view, entities assess recognition and measurement by applying the hierarchy in paragraphs 10-12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and the Conceptual Framework. Under this approach, the entity should recognize an asset when it is probable that economic benefits will flow to the entity and the amount can be measured reliably. The entity should address remaining uncertainties through measurement and disclosure rather than through deferring asset recognition until it achieves virtual certainty. The disclosure should address the significant judgments made as well as the sources of estimation uncertainty.

View 3: The accounting treatment at March 31, 2026, depends on the entity’s assessment of the enforceability of the Supreme Court ruling

Proponents of this view think the accounting for potential tariff recoveries depends on an entity’s assessment of whether, under the applicable legal framework, it had a valid and enforceable right to a refund at the March 31, 2026, reporting date. IAS 37 and the Conceptual Framework require an entity to assess the existence of assets and liabilities based on present rights and obligations, which may require judgment when enforceability is uncertain. Accordingly, the assessment focuses on whether the legal and regulatory developments give rise to a present right, a possible right, or no right to recovery.

The Supreme Court decision and subsequent court orders do not, in isolation, dictate a single accounting outcome. Instead, the analysis may differ depending on the processing status of an entity’s tariffs, the risk of appeal, and the extent to which the relevant decisions are considered final and legally enforceable. An entity may conclude that the potential recovery represents no asset, a contingent asset (View 1 above), or a recognized asset (View 2 above), based on its assessment of its specific facts and circumstances. An entity should carefully consider and evaluate disclosure requirements based on its conclusion to ensure the financial statements reflect the entity’s significant judgments and uncertainties.

The Group’s Discussion

Most Group members supported View 1, as they thought that tariff relief meets the definition of a contingent asset in IAS 37 (i.e., a possible asset that arises from past events and whose existence will be confirmed by the occurrence or non-occurrence of an uncertain future event not wholly within the control of the entity). They noted that as of March 31, 2026, significant uncertainty existed regarding entitlement, timing, and approval of claims, making it difficult for entities to conclude that they met the recognition threshold under IAS 37. As a result, these Group members thought most entities should not recognize an asset at that date.

Some Group members supported View 2, as they thought that tariff relief does not meet the definition of a contingent asset and, instead, should be assessed using a probability threshold. Under this approach, an entity would recognize an asset when it determines that it is probable that economic benefits will flow to the entity and that it can measure the amount reliably. However, these Group members noted that significant uncertainty existed as at March 31, 2026, making it difficult for entities to conclude that they met the recognition threshold even under this approach.

Regardless of the approach applied, some Group members emphasized the importance of providing clear, entity-specific disclosures about the approach used, key assumptions, and how the tariff-refund process affects the entity. One Group member raised that IAS 37 clearly indicates that disclosures for contingent assets should not provide misleading indications of the likelihood of income arising.

Some Group members also noted that this discussion relates specifically to IEEPA tariffs and that entities should perform separate analyses for other tariff-refund arrangements, as differences in facts and circumstances could lead entities to different conclusions.

Issue 2: Should Entities Treat the Implementation of the CAPE Refund Mechanism as an Adjusting or Non-adjusting Subsequent Event for Periods Ending March 31, 2026?

Analysis

CBP’s implementation of Phase 1 CAPE functionality on April 20, 2026, represents an event after the reporting period. In applying IAS 10 Events After the Reporting Period, entities should assess whether this event provides evidence of conditions that existed at March 31, 2026 (adjusting), or whether it is indicative of conditions that arose after that date (non-adjusting).

View 1: The implementation of a refund mechanism after the March 31, 2026, reporting period end is a non-adjusting subsequent event

Proponents of this view note that, as at March 31, 2026, the refund mechanism for IEEPA tariffs was still under development and subject to some administrative and legal uncertainty. While court decisions before period end indicated that refunds were expected, the ability of entities to submit claims and obtain cash refunds depended on the successful implementation and operation of a government-administered process that had not yet started nor existed before. As a result, any potential recovery at the reporting date did not give rise to a present enforceable right and, instead, met the definition of a contingent asset.

The commencement of Phase 1 processing through CAPE on April 20, 2026, represents the point at which the refund mechanism became operational, giving rise to new conditions after the reporting period. In the context of a contingent asset, an asset could only be recognized if, at the end of the March 31, 2026, reporting period, the entity could show that it was virtually certain that it would obtain a refund. Events after the reporting period that establish virtual certainty are non-adjusting events. Accordingly, the launch of CAPE Phase 1 would not affect recognition or measurement as at March 31, 2026, even though it may significantly increase the likelihood of recovery.

Under this view, entities would consider whether they are required to disclose the subsequent event to enable users of the financial statements to understand the nature of the development and, where practicable, its estimated financial effect. Entities would consider recognition in a subsequent reporting period once they meet relevant conditions.

View 2: The implementation of a refund mechanism after the March 31, 2026, reporting period end is an adjusting subsequent event

Under this view, the CBP’s implementation of CAPE Phase 1 functionality on April 20, 2026, is an adjusting event in accordance with IAS 10. This view is based on the premise that the CAPE implementation provides additional evidence of conditions that existed as at March 31, 2026, rather than creating new conditions after the reporting date. Proponents of this view think the Supreme Court’s decision and the CBP’s various announcements through March 31, 2026, regarding the CAPE refund mechanism give rise to a present right to a refund of IEEPA tariffs previously paid as at March 31, 2026. Under this view, the launch of CAPE Phase 1 does not establish a new right but, instead, confirms a right that already existed at the reporting date. Proponents of this view think the CAPE implementation provides further clarity regarding the existence and realization of that right.

Under this view, the refund was not a contingent asset at March 31, 2026; rather, it was an asset. Consistent with IAS 10, events occurring after the reporting period that provide evidence of conditions existing at the reporting date require entities to adjust the amounts recognized in the financial statements. This includes the recognition or measurement of a receivable when an entity concludes that a present right existed at March 31, 2026. Under this view, CAPE Phase 1 may inform the measurement of the asset or the assessment of whether recognition criteria were met at the reporting date, rather than being treated solely as a subsequent non-adjusting disclosure event.

The Group’s Discussion

The Group members who supported View 1 for Issue 1 also supported View 1 for Issue 2. They noted that CBP’s implementation of CAPE Phase 1 functionality on April 20, 2026, is a non-adjusting subsequent event, as it does not provide evidence of conditions that existed on March 31, 2026, and does not establish virtual certainty of an entity’s entitlement to the refund at that date.

Some Group members who supported View 2 for Issue 1 noted that subsequent developments may provide evidence of conditions that existed at the reporting date, which could support treatment as an adjusting subsequent event. However, several Group members observed that, given the high level of uncertainty on March 31, 2026, this distinction may not affect the outcome in practice, as entities would likely still conclude that recognition is not appropriate at that time.

Issue 3: How Should an Entity Classify and Present Tariff Recoveries?

Analysis

Entities may have capitalized IEEPA tariffs as part of the initial cost of assets, such as inventory or property, plant, and equipment (PP&E). Generally, it would be most appropriate for entities to record tariff recoveries in the same way they originally recorded them. Under this approach, entities would account for recoveries for tariffs they originally recorded in inventory or PP&E as follows:

Inventory: A reduction (i.e., credit) to the cost of the related inventory if still on-hand, or to cost of goods sold if the inventory has been sold to customers as at period end. Entities may need to evaluate their inventory turnover and costing method to determine the appropriate amount to record in inventory and the cost of goods sold.

PP&E: A reduction (i.e., credit) to the cost basis of the PP&E. Either of the following approaches are acceptable:

Prospectively, by recording the full refund as a reduction to the carrying value of the PP&E and adjusting depreciation on a prospective basis.
Cumulative catch-up, by allocating the refund between the carrying value of the PP&E and the reversal of previously recorded depreciation expense.

While generally it is appropriate to record tariff recoveries in this manner, other approaches may also be acceptable based on specific facts and circumstances. Entities should consider providing disclosures describing where the IEEPA tariffs and related tariff recoveries are recorded in the financial statements.

The Group’s Discussion

The Group agreed with the analysis.

Background – Geopolitical and Global Economic Uncertainty

Geopolitical instability and ongoing global conflicts have continued to evolve in recent years, contributing to heightened economic uncertainty across global markets. These developments have had a pervasive impact on economic activity and financial markets, with direct implications for financial reporting.

A key consequence of geopolitical uncertainty has been increased volatility in energy and commodity markets, driven by factors such as supply disruptions, restrictions on imports and exports, and blockages of key shipping routes. These events have resulted in significant fluctuations in commodity prices contributing to elevated inflationary pressures across many jurisdictions. Higher commodity prices have affected entities through increased input and operating costs and changes in customer demand and pricing dynamics. Some of the key impacts arising from increasing commodity prices include, but are not limited to:

increased cost of raw materials and energy;
supply chain disruptions and delays in the availability of critical inputs;
pressure on margins when cost increases cannot be passed on to customers;
changes in demand for goods and services due to reduced consumer purchasing power;
increased volatility in the valuation of financial instruments and derivative contracts; and
heightened sensitivity of discount rates and valuation assumptions to changes in market-based inputs, including equity risk premiums.

In addition, entities should consider the broader and more persistent effects of commodity-price volatility on the global economy and financial markets. Many IFRS Accounting Standards require the use of assumptions that are sensitive to discount rates and market-based inputs, which may introduce heightened estimation uncertainty in the current environment.

Entities must carefully consider their specific facts, circumstances, and risk exposures when assessing how geopolitical uncertainty, rising commodity prices, and inflation affect their financial reporting. Financial statements and related disclosures should reflect all material impacts, including areas involving significant judgment and estimation uncertainty.

Standard setters and regulators have emphasized the importance of transparent, entity‑specific disclosures in periods of heightened uncertainty. There is an increased focus on explaining how management has considered current economic conditions, including commodity-price volatility, when applying accounting policies and making key judgments and estimates.

Entities should provide clear disclosure of the impact on amounts they recognize, measure, and present in the financial statements, as well as the sensitivity of those amounts to reasonably possible changes in key assumptions such as commodity prices, and discount rates.

Rising commodity prices and the corresponding inflationary impacts may affect several areas of financial reporting, such as impairment assessments, deferred tax asset recognition, fair value measurements, and going concern considerations. Entities should consistently update changes in assumptions and estimates in these areas as new information becomes available and disclose when material.

Given the fluid and evolving nature of geopolitical risks and macroeconomic conditions, entities should continually reassess their judgments and estimates up to the date the financial statements are authorized for issue. Disclosures should be tailored to the entity’s circumstances and provide users with insight into how management views current and expected impacts, including through the lens of heightened commodity-price volatility and broader inflationary effects.

Issue 4: Accounting Considerations of Geopolitical and Economic Uncertainty

Analysis

Geopolitical concerns and economic uncertainty around the world continue to impact entities globally and may give rise to a range of accounting considerations affecting both annual and interim financial statements. In particular, commodity-price volatility has contributed to broader inflationary pressures, with pervasive effects across financial statements, including increased estimation uncertainty and the impacts on measurement and disclosure.

Disclosures

Financial statement disclosure requirements will vary depending on the financial impact of current events. During periods of heightened uncertainty, there may be additional risks that the carrying amounts of assets and liabilities could require material adjustments within the next financial year. Accordingly, entities need to carefully consider whether additional disclosures are necessary to enable financial statement users to understand the judgments applied. IAS 1 Presentation of Financial Statements requires disclosure of information about assumptions concerning the future and other major sources of estimation uncertainty at the end of the reporting period that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities (e.g., assets subject to impairment) within the next financial year. The nature and extent of the information entities provide will vary depending on the type of assumption and other circumstances. It may include:

the nature of the assumption or other estimation uncertainty;
the sensitivity of carrying amounts to the methods, assumptions, and estimates underlying their calculation, including the reasons for the sensitivity;
the expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected; and
an explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved.

Entities need to consider the level of volatility when determining the relevant sensitivity disclosures. That is, in times of high volatility, a reasonably possible change in assumptions will generally involve more significant changes than in times of low volatility.

An entity may have appropriately analyzed and concluded that it has limited quantitative exposure to a particular risk (e.g., dependence on commodities sourced from a geopolitically unstable region). In such cases, consistent with the IASB’s November 2025 publication of illustrative examples on reporting uncertainties in financial statements, the entity is still required to assess whether information about the entity-specific and external factors considered in making that materiality judgment is subject to disclosure, taking into account the information needs of the primary users of the financial statements.

Forward-looking financial information

Geopolitical uncertainty and related macroeconomic volatility increase the importance of robust and consistent forward‑looking financial information used in financial reporting. Projections, assumptions, and valuation inputs need to be applied consistently, must reflect conditions existing as of the reporting date, and based on reasonable and supportable assumptions that are internally consistent across the financial statements.

Entities are required to incorporate current market-participant assumptions, expected pricing trends, cost structures, and discount rates that reflect the prevailing economic environment. Forward-looking cash flow projections used in impairment tests, fair value measurements, and deferred tax asset recognition, should therefore incorporate the effects of commodity market volatility, demand uncertainty, and the corresponding inflationary pressures, when these factors are relevant at the reporting date.

Assumptions relating to growth rates, margins, commodity prices, and discount rates used should be aligned across all areas relying on forward-looking information. While entity‑specific adjustments may be appropriate depending on the measurement objective (e.g., entity‑specific cash flows for value‑in‑use compared with market‑participant assumptions for fair value), underlying macroeconomic assumptions should be consistent across different accounting analyses.

Uncertainty around future cash flows may require using probability‑weighted scenarios rather than single point estimates, particularly when outcomes are highly sensitive to commodity pricing or broader economic developments. Similarly, when significant judgment is required due to market volatility or reduced liquidity, entities may need to consider a range of observable and unobservable inputs and determine the point within that range that best represents fair value at the measurement date. In all cases, entities should apply assumptions consistently and adjust only for risks not already reflected elsewhere in the estimates (e.g., in discount rates).

Given the heightened uncertainty associated with geopolitical risks, entities may need to update projections more frequently and reassess whether assumptions remain reasonable and supportable at each reporting date.

Clear, entity-specific disclosures are required to explain key assumptions, sources of estimation uncertainty and sensitivities, including how changes in commodity prices, inflation or discount rates could affect impairment outcomes, fair value measurements, or the recoverability of deferred tax assets. Transparent disclosure of the interdependencies between forward-looking assumptions used across different accounting areas is essential to enable financial statement users to understand management’s application of judgment in the current economic environment.

Other possible areas for consideration

Beyond the areas discussed above, geopolitical uncertainty may have many broader financial reporting implications. In particular, current geopolitical and macroeconomic conditions may give rise to heightened considerations related to an entity’s going concern assessment and interim financial reporting, given the potential effects on liquidity, operational continuity, and forecast cash flows.

IAS 1 requires management to assess an entity’s ability to continue as a going concern, taking into account all available information about the future, for at least 12 months from the end of the reporting period. Geopolitical developments may affect this assessment through increased volatility in commodity prices, inflationary pressures, supply chain disruption, or restrictions on operations, which may, in turn, impact liquidity, covenant compliance, or access to financing. When such conditions give rise to material uncertainties that may cast significant doubt on an entity’s ability to continue as a going concern, transparent and entity-specific disclosures are required, reflecting the significant judgments applied and the underlying assumptions used.

Geopolitical and macroeconomic conditions may also have implications for interim financial reporting under IAS 34 Interim Financial Reporting. Entities are required to explain events and transactions that are significant to an understanding of changes in financial position and performance since the end of the last annual reporting period. In periods of heightened uncertainty, entities should consider whether changes in economic conditions, market volatility, or operating environments are significant enough to warrant updated disclosures, including updates to key judgments, estimates, or sensitivity information previously provided in the annual financial statements.

While geopolitical uncertainty may also affect a wide range of other accounting areas, those impacts will not be addressed further in this discussion. The purpose of highlighting going concern and interim reporting considerations is to draw attention to areas where the effects of geopolitical developments may be particularly pervasive and judgment‑intensive in the near term.

The Group’s Discussion

The Group agreed with the analysis.

Representatives from the Canadian Securities Administrators (CSA) emphasized that entities should provide clear, entity-specific disclosures in their financial statements and MD&A regarding key estimates, assumptions, judgments, and the impact of ongoing economic and geopolitical uncertainty. An entity’s MD&A should include information on risks and uncertainties, expected future impacts on operations, projects, and financial condition, including liquidity and capital resources, as well as management’s response to those conditions. The CSA representatives also noted that entities should carefully assess impairment, provisions, valuations, and other significant estimates, and provide appropriate sensitivity analyses when relevant. They further reminded entities of the securities regulatory requirements when an entity discloses forward-looking information, including the need to have a reasonable basis for including forward-looking information in public disclosures, clear identification of the forward-looking information, disclosure of material factors and assumptions and risk that actual events will be different, and to update previously disclosed forward-looking information when necessary.

One Group member noted that Canadian entities have operated in an uncertain environment for several years and that the current uncertainty is not unique. They emphasized that entities should provide robust, entity-specific disclosures, rather than treating each period of uncertainty as temporary or exceptional. Another Group member highlighted that the IASB’s illustrative examples on reporting uncertainties can help entities assess whether they have sufficiently addressed uncertainty in their financial statement disclosures.

Overall, the Group’s discussion raised awareness of the financial reporting considerations arising from current global economic and geopolitical developments. No further actions were recommended to the AcSB.

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IFRS 18: Disclosures about Management-defined Performance Measures (MPMs)

Background

IFRS 18 Presentation and Disclosure in Financial Statements introduces the concept of MPMs and requires their disclosure in the financial statements, making them part of the audited financial statements. MPMs are subtotals of income and expenses used in public communications outside of the financial statements to communicate management’s view of an aspect of the entity’s financial performance. This concept captures some, but not all, non–generally accepted accounting principles (GAAP) measures that companies commonly use today.

IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, and applies retrospectively. Therefore, many entities are in the process of identifying and analyzing which of their performance metrics that may appear in their interim financial statements will qualify as MPMs. Entities will need to identify their MPMs each reporting period, including interim periods, and disclose reconciliations of the measures to the most directly comparable IFRS Accounting Standards subtotals, including tax and non-controlling interest effects. Requiring MPM disclosures in the condensed interim financial statements will involve additional effort, as IFRS 18 provides no relief from the reconciliation requirement. IFRS 18 introduces consequential amendments to IAS 34 Interim Financial Reporting that require these disclosures for MPMs in interim financial statements. However, only MPMs that relate to performance in the interim reporting period need to be disclosed.

While IFRS 18’s disclosure requirements for MPMs apply to the financial statements, National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosures (NI 52-112) sets out disclosure requirements for non-GAAP financial measures, non-GAAP ratios, and other financial measures outside the financial statements. Canadian Securities Administrators (CSA) have published Proposed Amendments to NI 52-112 to ensure that all financial measures traditionally considered non-GAAP continue to be regulated under NI 52-112 when disclosed outside the financial statements. Comments on the Proposed Amendments were due by February 11, 2026, and the CSA is currently reviewing those comments.

The MPM requirements apply to all entities applying IFRS Accounting Standards, including private companies and publicly accountable enterprises. If a private entity communicates subtotals that meet the definition of MPMs outside its financial statements, that entity would be required to apply the related disclosure requirements. However, if an entity does not communicate such subtotals outside its financial statements, the MPM disclosure requirements would not apply.

IFRS 18 defines an MPM as a subtotal of income and expenses that:

an entity uses in public communications outside financial statements;
an entity uses to communicate to users of financial statements management's view of an aspect of the financial performance of the entity as a whole; and
is not listed in paragraph 118 or specifically required to be presented or disclosed by IFRS Accounting Standards.

The Group discussed MPMs at its meeting in May 2025. The Group revisited this discussion by further examining some issues in practice.

Background for Issue 1

Entities may use a subtotal that begins with an IFRS Accounting Standards profit or loss measure and adjust it (either through addition or subtraction) for balance sheet or cash flow items rather than specific income or expenses recognized in the period. For example, an entity might disclose net income adjusted to include capital expenditures.

Management might communicate cash flow related non-GAAP measures to help investors understand the company’s ability to meet short-term obligations to fund its operations. However, even if an entity labels a non-GAAP measure to suggest it is a liquidity or cash flow metric and includes words in the label such as “cash,” “funds”, or “flow,” entities must consider how they calculate the measure. The labelling of a metric itself does not determine whether it is an MPM. Additionally, companies may calculate a similarly labelled metric in different ways, which may result in one metric meeting the definition of an MPM for one company, but not for another.

Fact Pattern 1

A real estate company publicly discloses a metric called adjusted funds from operations (AFFO) outside its financial statements. The entity calculates AFFO in two steps as follows:
- Step 1: Funds from operations (FFO) = Net income from IFRS Accounting Standards financial statements adjusted for: unrealized changes in the fair value of investment properties, amortization of tenant allowances, gains/losses from sales of investment properties, taxes on gains from disposal of properties, operational revenues and expenses from right-of-use assets, and capitalized interest related to qualifying assets
- Step 2: AFFO = FFO adjusted for: capital expenditures, leasing costs, tenant improvements, and straight-line rent

Issue 1: Does AFFO Represent a Subtotal of Income and Expenses per IFRS 18?

Analysis

View 1: Yes, AFFO represents a subtotal of income and expenses

Proponents of this view note that IFRS 18 does not include a definition of the term “subtotal”. They also note that nothing in IFRS 18 appears to restrict the composition of the subtotal to amounts an entity recognizes and measures in accordance with IFRS Accounting Standards, nor does it prescribe how management might adjust an IFRS Accounting Standards subtotal. They think this is intentional due to the following guidance in paragraph BC331 of the Basis for Conclusions for IFRS 18 (emphasis added):

The IASB decided to limit the definition of 'management-defined performance measures' to subtotals of income and expenses. For example, measures that adjust a total or subtotal specified in IFRS Accounting Standards, such as adjusted profit or loss, are management-defined performance measures. Other measures (such as free cash flow or customer retention rate) are not management-defined performance measures.

An entity can also infer this by the requirement in paragraph 123 of IFRS 18 to disclose:

how the MPM is calculated, including how the measure differs from accounting policies in IFRS Accounting Standards; and
a reconciliation between an MPM and the most directly comparable IFRS Accounting Standards subtotal.

Proponents of this view think the key to whether a performance measure is a subtotal of income and expenses is whether the measure starts with, or anchors to, a subtotal derived from the IFRS Accounting Standards income statement. Beyond that, there are generally no explicit restrictions in IFRS 18 as to the types of adjustments that can be made to the subtotal of income and expenses that would prevent it from being an MPM, as long as the subtotal of income and expenses meets the rest of the definition. For example, the measure would still need to be used in public communications and depict management’s view of an aspect of financial performance of the entity as a whole to meet the definition of an MPM.

AFFO originates from FFO, which is a performance measure. The origin of FFO, which is also defined and reconciled in MD&A as it is a non-GAAP measure, is net income. Furthermore, management often provides AFFO as a supplemental measure of operating performance, suggesting that it is used to communicate management’s view of an aspect of the financial performance of the entity as a whole.

View 2: No, AFFO does not represent a subtotal of income and expenses

Proponents of this view note that the definition of an MPM in paragraph 117 of IFRS 18 and associated guidance in paragraphs B116-B118 require the measure to be a subtotal of income and expenses. Paragraphs 4.68-4.69 in the Conceptual Framework define income and expenses as movements in assets and liabilities that result in increases or decreases in equity (other than contributions from/distributions to holders of equity claims). AFFO anchors to FFO, which is a subtotal of income and expenses from IFRS Accounting Standards that, as illustrated in Fact Pattern 1, has been adjusted for balance sheet items. Therefore, proponents of this view think it does not constitute a subtotal of income and expenses and would not be subject to the MPM disclosure requirements in IFRS 18.

The Group’s Discussion

Most Group members supported View 1 because they think entities should identify MPMs based on their purpose and how management uses them to communicate financial performance. They think entities might be able to leverage some existing disclosures made under securities law (i.e., NI 52-112) to determine management’s use of a measure and whether it is anchored to the income statement. Furthermore, they think if a measure is anchored to the income statement, it would typically meet the definition of an MPM, regardless of whether certain adjustments relate to non-income statement items. One Group member supported this view by referring to paragraph BC357 of the Basis for Conclusions for IFRS 18. The paragraph notes that the IASB decided not to place restrictions on how an entity calculates an MPM, as such restrictions could limit the usefulness of the information provided. Another Group member highlighted paragraph B134(b) in the application guidance of IFRS 18, which notes that additional disclosure is required when the calculation of an MPM differs from accounting policies required or permitted by IFRS Accounting Standards. They think this guidance affirms that subtotals of income and expenses that adjust for non–IFRS Accounting Standards–compliant accounting policies are MPMs.

One Group member supported View 2 based on a narrower interpretation of a “subtotal of income and expenses.” They suggested that such a subtotal should represent an intermediary amount derived solely from income and expense items recognized under IFRS Accounting Standards, without adjustments for non–IFRS Accounting Standards or non-income-statement items.

Background for Issue 2

Paragraph 23 of IFRS 8 Operating Segments requires an entity to report “a measure of profit or loss for each reportable segment.” This measure of profit or loss does not need to be calculated in accordance with IFRS Accounting Standards applied in the entity’s IFRS-compliant financial statements (paragraphs 23 and 25 of IFRS 8). It is based on the “management approach” (i.e., information reported internally to the chief operating decision maker).

If a segmental profit or loss subtotal meets the definition of an MPM under IFRS 18, then additional disclosures would need to be provided in the notes to the financial statements (i.e., beyond what is required under IFRS 8). This information will need to be disclosed separately in the note dedicated to all MPMs or, if combined with segment disclosures, clearly distinguished therefrom (paragraph B132 of IFRS 18).

Fact Pattern 2

An entity with diversified operations has five reportable segments: car parts, motor vessels, software, electronics, and finance.
The information disclosed about each reportable segment’s profit or loss, assets and liabilities are included in reports used by the chief operating decision maker.
Management discloses adjusted net interest revenue (net interest revenue adjusted for unusual transactions and accrual accounting) in its MD&A. Net interest revenue is a profit or loss measure that is only included in the entity’s finance segment.
Assume that adjusted net interest revenue would otherwise meet the definition of an MPM.
The example in this fact pattern was derived from paragraph IG3 in the IFRS 8 Implementation Guidance. See paragraph IG3 for a more detailed illustration of this fact pattern.

Issue 2: Can Adjusted Net Interest Revenue Ever Constitute Management’s View of an Aspect of the Financial Performance of the Entity as a Whole?

Analysis

View 1: No, individual reportable segment performance measures only communicate an aspect of the financial performance of the entity

Proponents of this view note that paragraph 117 of IFRS 18 defines an MPM as a subtotal of income and expenses that is used to communicate to users of the financial statements management’s view of an aspect of the financial performance of the entity as a whole. Paragraph B114 of IFRS 18 states:

For example, if a subtotal of income and expenses that relates to a reportable segment disclosed in accordance with IFRS 8 does not provide information about an aspect of the financial performance of the entity as a whole, that subtotal cannot meet the definition of a management-defined performance measure.

Therefore, proponents of this view think that for a performance measure to meet the definition of an MPM, it must relate to the performance of each operating segment. As net interest income only relates to the finance segment, the measure is not cross-cutting and does not represent performance of the entity as a whole.

View 2: Yes, an individual reportable segment performance measure may meet the definition of an MPM

Proponents of this view think the guidance in paragraph B115 of IFRS 18 and paragraph BC346 of the Basis for Conclusions suggest that there are circumstances when a reportable segment can provide information about the performance of an entity as a whole. Specifically, paragraph B115 of IFRS 18 discusses situations when there may be one segment that includes a main business activity. It states:

For example, if a reportable segment contains a single main business activity of the entity and a subtotal of income and expenses relating to that segment is presented in the statement of profit or loss, that would indicate that the subtotal provides information about an aspect of the financial performance of the entity as a whole. In such cases, a subtotal of income and expenses related to that reportable segment would meet the definition of a management-defined performance measure if it met the other parts of the definition of a management-defined performance measure.

In addition, paragraph BC346 in the Basis for Conclusions for IFRS 18 notes that a subtotal in the statement of profit or loss that arises from a single reportable segment may represent performance of the entity as a whole:

[A] reportable segment measure might provide information about the performance of an entity as a whole—for example, if it presents a subtotal in the statement of profit or loss that relates to only one of its reportable segments. The IASB did not exclude such segment measures from the definition of management-defined performance measures.

Net interest revenue only arises in the finance segment, and it is presented directly on the statement of profit or loss. Because management discusses adjusted net interest revenue in the MD&A, proponents of this view think it likely represents the entity’s performance as a whole for this aspect of the business.

The Group’s Discussion

The Group supported View 2 because they think an individual reportable segment performance measure may meet the definition of an MPM, depending on the facts and circumstances. They emphasized that the assessment requires careful analysis, particularly in considering whether the measure represents an aspect of the entity “as a whole.” Some Group members noted that the number of segments, how the entity presents measures, and whether it discloses totals or comparable metrics across segments are relevant factors in making this determination.

Some Group members think segment measures will not often qualify as MPMs. However, they emphasized that entities should not assume such measures are automatically out of scope and should assess each measure based on its purpose, presentation, and how management uses it to communicate performance. One Group member also noted that there is a rebuttable presumption in IFRS 18 that a subtotal of income and expenses that an entity communicates publicly is an MPM. They think this reinforces that a segment measure that an entity regularly discloses outside its financial statements might be an MPM unless the entity provides reasonable and supportable information to rebut this presumption.

Issue 3: Income versus “Negative Expense”

Analysis

Paragraph B116(a) of IFRS 18 clearly states that subtotals of only income or only expenses are not subtotals of income and expenses and, consequently, are not MPMs. Some metrics that entities use to measure performance may include subtotals that contain “negative expenses” or reversals of expenses. Examples could include the numerator or denominator in efficiency ratios. Entities use such measures as an indicator of profitability by gauging how well the entity manages costs compared to how much revenue they earn. For example, financial institutions normally disclose an efficiency ratio as a key performance metric.

A cost-to-income ratio may include a numerator of “operating costs” or “adjusted operating costs”. If the numerator comprises only expenses, it would not be a potential MPM. However, “operating costs” might include items that are expenses (i.e., debits) in one period but income (i.e., credits) in another period. In periods when “operating costs” include a line item that is income, it would be a subtotal of income and expenses. Examples could include impairments and other write-downs that can reverse. Operating costs might also include foreign exchange movements that fluctuate between gains and losses. Operating expenses could also include other expense estimates that can be revised or reversed in a reporting period resulting in a “credit” within operating costs.

If income items are netted within a subtotal of expenses, the measure can still be a subtotal of income and expenses, but this requires careful assessment. That assessment depends on the nature of the credit, how it arises, and how management views the measure. Labels that management uses in its public communications to describe the measure are not determinative. Whether adjusted operating expenses is a subtotal of income and expenses depends on whether the measure genuinely combines income and expenses, or whether it remains, in substance, an aggregation of expenses with “expense-related” credits.

The Group’s Discussion

The Group agreed with the analysis and noted that the existence of a credit within an expense measure does not automatically make it an MPM. They emphasized that entities should assess the purpose of the measure when determining whether it meets the definition of an MPM. One Group member observed that certain adjustments may not occur in every period and that the absence of a gain or credit in a given period does not affect the conclusion. Instead, entities should focus on how management defines and uses the measure, noting that a measure can still qualify as an MPM even if expected adjustments, such as gains, do not arise in that period.

Overall, the Group’s discussion raised awareness of factors an entity might consider when determining whether a reported metric qualifies as an MPM under IFRS 18. The Group recommended the AcSB continue to monitor the evolving application of IFRS 18 and engage in global dialogue, including following developments from the IFRS Interpretations Committee.

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OTHER MATTERS

Risk Mitigation Accounting – Proposed Amendments to IFRS 9 and IFRS 7

In December 2025, the IASB issued the Exposure Draft, “Risk Mitigation Accounting – Proposed amendments to IFRS 9 and IFRS 7.” The Exposure Draft proposes amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The IASB is proposing:

to add a risk mitigation accounting model for companies managing repricing risk on a net basis; and
to require a company to disclose its strategy for managing repricing risk and the effects of its risk management activities.

The IASB is also seeking feedback on the proposed withdrawal of IAS 39 Financial Instruments: Recognition and Measurement. Canadians are encouraged to submit comment letters to the IASB by July 31, 2026.

Recent IFRS Interpretations Committee Agenda Decisions

Classification of a Foreign Exchange Difference from an Intragroup Monetary Liability (or Asset) (IFRS 18 Presentation and Disclosure in Financial Statements)

In April 2026, the IASB ratified the IFRS Interpretations Committee’s agenda decision on Classification of a Foreign Exchange Difference from an Intragroup Monetary Liability (or Asset). The request asked how an entity applying paragraph B65 of IFRS 18 classifies a foreign exchange difference if the income and expenses from the intragroup monetary liability (or asset) that gave rise to the foreign exchange difference have been eliminated on consolidation. The agenda decision clarifies that a reasonable reading of paragraph B65 of IFRS 18 results in two possible ways to classify the exchange difference:

View 1: Classify the exchange difference in the operating category as the default category; or
View 2: Classify the exchange difference in the same category in which the income and expenses from the intragroup loan would have been classified before their elimination on consolidation, or, if doing so would involve undue cost or effort, in the operating category.

Economic Benefits from Use of a Battery under an Offtake Arrangement (IFRS 16 Leases)

In April 2026, the IASB ratified the IFRS Interpretations Committee’s agenda decision on Economic Benefits from Use of a Battery under an Offtake Arrangement. The request asked how an entity applies the requirements in paragraph B9(a) of IFRS 16 – specifically, how an entity determines whether a customer has the right to obtain substantially all of the economic benefits from use of an identified asset. The agenda decision clarifies that an entity should consider the terms and conditions of the contract and all relevant facts and circumstances to determine whether it has the right to obtain substantially all of the economic benefits from use of an identified asset and the right to direct the use of that asset.

Fair Presentation and Compliance with IFRS Accounting Standards (IAS 1 Presentation of Financial Statements)

In April 2026, the IASB ratified the IFRS Interpretations Committee’s agenda decision on Fair Presentation and Compliance with IFRS Accounting Standards. The request asked whether an entity applying paragraph 19 of IAS 1 that departs from a requirement in an IFRS Accounting Standard is required to comply with the requirement for fair presentation in paragraph 15 of IAS 1. The agenda decision notes that the fact pattern described in the request arises infrequently.

Assessment of a Specified Main Business Activity for the Purposes of the Separate Financial Statements of a Parent (IFRS 18)

In April 2026, the IASB ratified the IFRS Interpretations Committee’s agenda decision on Assessment of a Specified Main Business Activity for the Purposes of the Separate Financial Statements of a Parent. The request asks how a parent applying IFRS 18 assesses, for the purposes of its separate financial statements, whether it has a specified main business activity of investing in unconsolidated subsidiaries. The agenda decision clarifies that, in accordance with paragraph 55 of IFRS 18, an entity can have a main business activity of investing in unconsolidated subsidiaries. Assessing whether a parent has a main business activity of investing in unconsolidated subsidiaries for the purposes of its separate financial statements requires judgment – in particular, when the parent has more than one business activity – and depends on the parent’s specific facts and circumstances.

Scope of the Requirement to Disclose Expenses by Nature (IFRS 18)

In April 2026, the IASB ratified the IFRS Interpretations Committee’s agenda decision on Scope of the Requirement to Disclose Expenses by Nature. The request asks whether the disclosure requirements in paragraph 83 of IFRS 18 apply:

only when an entity presents operating expenses listed in paragraph 75(a)(ii) of IFRS 18 by function in the operating category of the statement of profit or loss; or
when an entity presents any expense by function in the operating category of the statement of profit or loss, including expenses listed in paragraph 75(b)-⁠(c) of IFRS 18.

The agenda decision notes that paragraph 83 of IFRS 18 contains no exceptions or exclusions. That means the reason for classifying an expense by function is irrelevant in determining whether an entity is required to apply paragraph 83. Therefore, paragraph 83 of IFRS 18 applies when an entity presents any line item comprising expenses classified by function in the operating category of the statement of profit or loss, including expenses listed in paragraph 75(b)-(c) of IFRS 18 that are classified by function.

Classification of Gains and Losses on a Derivative Managing a Foreign Currency Exposure (IFRS 18)

In April 2026, the IASB ratified the IFRS Interpretations Committee’s agenda decision on Classification of Gains and Losses on a Derivative Managing a Foreign Currency Exposure. The request asks how an entity applies the requirements in paragraphs B70-B76 of IFRS 18 to classify gains or losses on a derivative financial instrument in its consolidated statement of profit or loss. The derivative is a forward contract that is used to manage the foreign currency risk of a net liability exposure but is not designated as a hedging instrument applying IFRS 9 Financial Instruments. The agenda decision notes an entity needs to identify the risk(s) a derivative is used to manage. Doing so enables the entity to determine the categories in profit or loss affected by that risk and the resulting classification of gains or losses on that derivative.

Updates to Agenda Decisions for IFRS 18

In January 2026, the IASB voted in favour of the IASB’s recommendations to:

withdraw the Agenda Decision Income and Expenses arising on Financial Instruments with a Negative Yield – Presentation in the Statement of Comprehensive Income (IAS 39 Financial Instruments: Recognition and Measurement and IAS 1 Presentation of Financial Statements); and
update the following agenda decisions:
- Disclosure of Revenues and Expenses for Reportable Segments (IFRS 8 Operating Segments);
- Demand Deposits with Restrictions on Use Arising from a Contract with a Third Party (IAS 7 Statement of Cash Flows);
- Subsequent Expenditure on Biological Assets (IAS 41 Agriculture);
- Disclosure of Changes in Liabilities Arising from Financing Activities (IAS 7);
- Physical Settlement of Contracts to Buy or Sell a Non-financial Item (IFRS 9 Financial Instruments); and
- Normal Operating Cycle (IAS 1).

Private Session

The Group’s mandate includes assisting the AcSB in influencing the development of IFRS Accounting Standards (e.g., providing advice on potential changes to the standards). The Group’s discussion of these matters supports the Board in undertaking various activities that ensure Canadian perspectives are considered internationally. Since these discussions do not relate to assisting interested and affected parties in applying issued IFRS Accounting Standards, this portion of the Group’s meeting is generally conducted in private (consistent with the Board’s other advisory committees).

At its May 2026 meeting, the Group provided input on the IASB’s upcoming post-implementation review of the hedge accounting requirements in IFRS 9 Financial Instruments to assist in the development of the AcSB’s response letter.

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