IFRS® Accounting Standards Discussion Group Meeting Report – May 14, 2025

ITEMS PRESENTED AND DISCUSSED AT THE MAY 14, 2025 MEETING

Financial Reporting Considerations Related to Tariffs

Background

The U.S. government has imposed new tariffs on certain goods imported into the United States, as well as reciprocal tariffs on many countries, through a series of executive orders issued in February and March 2025. On April 9, 2025, the U.S. government announced a 90-day pause on the reciprocal tariffs for most countries; however, baseline tariffs and country or industry-specific measures remain in place.

Canada has imposed retaliatory tariffs in response to the U.S. tariffs on goods imported from the United States. Other nations have also implemented retaliatory measures on goods imported from the United States, which may indirectly impact Canadian companies.

Significant uncertainty continues regarding the duration of the new tariffs and the scale of any further retaliatory actions. The impact on individual entities will depend on various factors, including their jurisdiction, industry, and the nature of their trading relationships. It is expected that most entities will experience some level of financial impact given the broad market volatility and macroeconomic disruptions caused by these trade measures. Management and other interested and affected parties must evaluate how these tariffs will affect an entity's financial reporting, considering its unique facts and circumstances.

Tariffs may affect businesses both directly and indirectly. For example, entities may be influenced by the expected duration and scale of existing tariffs, potential changes to existing tariffs or additional retaliatory measures. These factors could result in operational disruptions (e.g., lost revenues, supply chain interruptions, workforce shortages or facility closures) and liquidity challenges (e.g., customer-collectability issues, increased costs in supply chain or constrained financing options). Furthermore, financial and commodities markets have experienced significant volatility, leading to fluctuations in the share prices of many entities.

Consequently, tariffs may have broad implications across various areas of financial reporting, which entities will need to consider when preparing their financial statements. Some areas of financial reporting that may be impacted are outlined below:

• Inventory measurement (IAS 2 Inventories) – Increased costs due to import tariffs may lead to write-downs of inventory to net realizable value.¹
• Restructuring (IAS 37 Provisions, Contingent Liabilities and Contingent Assets) – Uncertainties and associated disruptions to traditional trade routes could lead to restructuring activities.
• Revenue recognition (IFRS 15 Revenue from Contracts with Customers) – Entities may need to carefully evaluate contract terms and estimates of variable consideration, and uncertainties may prompt entities to modify or even terminate contracts.
• Expected credit losses (IFRS 9 Financial Instruments) – Customers or borrowers (for those entities with lending activities) may be adversely affected by the tariffs, which could impact their ability to pay amounts due and could trigger impairment losses.
• Classification of debt with covenants as short term or long term (IAS 1 Presentation of Financial Statements) – Entities may no longer comply with covenants because of the current environment, which may lead to reclassification of debt to short term or additional disclosure requirements.
• Share-based payments (IFRS 2 Share-based Payment) – The number of equity instruments that are expected to vest may change in the current environment, or there may be other impacts to the inputs in valuation techniques.
• Going concern uncertainty (IAS 1) – The current environment may create uncertainty regarding an entity’s ability to continue as a going concern.
• Other disclosure matters (IAS 1) – Entities are required to disclose 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., non-current assets subject to impairment), within the next financial year.

The above considerations are not exhaustive.

The Group discussed four other key areas where financial reporting may be impacted because of the tariffs:

• impairment of non-financial assets (IAS 36 Impairment of Assets);
• onerous contracts (IAS 37);
• deferred tax asset recognition (IAS 12 Income Taxes); and
• events after the reporting period (IAS 10 Events after the Reporting Period).

Issue 1: Implication of tariffs on an entity’s impairment assessment of non-financial assets (IAS 36) 

Analysis

Indicators of impairment

When preparing interim and annual financial statements under IFRS Accounting Standards, management will need to assess whether there are any indicators that a company’s non-financial assets may be impaired. At the reporting date, if there are indications that the carrying value of an asset or cash-generating unit (CGU) might not be recoverable, IAS 36 requires an estimate of the recoverable amount of the asset or CGU.

Paragraph 15 of IAS 36 clarifies that the concept of materiality applies in identifying whether the recoverable amount of an asset or CGU needs to be estimated.² For example, if previous calculations show that the recoverable amount of an asset or CGU is significantly greater than its carrying amount, an entity need not re-estimate its recoverable amount if no events have occurred that would eliminate that difference. Judgment will need to be applied in assessing whether tariffs could result in an elimination of this headroom. For entities with assets or CGUs that have little or no headroom, estimating the recoverable amount of the asset or CGU, following the introduction of these new tariffs, may be unavoidable.

Entities will need to consider both internal and external sources of information when assessing whether impairment indicators exist and the recoverable amount of an asset or CGU needs to be estimated. Such indicators are detailed in paragraph 12 of IAS 36 and could include:

• a share price decline resulting in the carrying amount of an entity’s net assets exceeding its market capitalization;
• significant changes with an adverse effect have occurred, or will occur in the near future, in the market, economic or legal environment in which an entity operates; or
• supply chain disruptions and/or cost and demand changes indicating performance of an asset or CGU will be worse than expected.

The imposition of tariffs and related uncertainties at the reporting date may be an indicator that necessitates an impairment test. Uncertainties can be related to:

• the magnitude of tariffs in place and their expected duration;
• possible additional tariffs;
• retaliatory measures that have been proposed;
• the resulting direct and indirect impacts of tariffs on demand, prices and costs; and
• an entity’s possible short-, medium-, and long-term responses to the tariffs and their likely effectiveness.

As a result of these uncertainties, management may need to apply significant judgment to determine whether the facts and circumstances indicate the need for an impairment test.

Given the rapidly evolving situation, if an impairment test was performed prior to the balance sheet date, management should assess whether further developments between the testing date and the balance sheet date indicate that a new or updated test is required.

In previous reporting periods, some entities might have qualified to use the most recent detailed calculation of the recoverable amount of a CGU with allocated goodwill from a previous period for their impairment test, as outlined in paragraph 99 of IAS 36. However, it may be challenging to demonstrate that the criteria in paragraph 99 will be met in the current environment.³

An asset or a CGU is impaired when its recoverable amount, being the higher of its fair value less costs of disposal (FVLCD) and its value in use (VIU), is less than its carrying value. VIU is the present value of the future cash flows expected to be derived from an asset or a CGU. The FVLCD of an asset or a CGU reflects market-participant assumptions of fair value based on the requirements in IFRS 13 Fair Value Measurement.

Determining recoverable amount in an impairment test using FVLCD

Assuming an entity will need to develop a fair value model using market-participant assumptions, this model will need to reflect the tariffs in place and any further uncertainties that exist at the measurement date. These uncertainties could relate to the specific factors outlined above. Many of these uncertainties may be challenging to model and will require significant judgment and estimation when developing assumptions.

Some of these uncertainties may also be reflected in benchmark discount rates. In developing benchmark discount rates, it will be important for an entity to carefully consider an appropriate peer population. This may be influenced by the degree to which an entity expects the tariffs to affect it and whether it has as much flexibility as other entities to respond to the tariffs (e.g., an ability to shift production and/or sell to other markets).

An entity may also need to consider multiple probability-weighted cash flow scenarios in developing a fair value model. These scenarios should reflect the range of possible short-, medium- and long-term impacts that tariffs may have on demand, pricing, and costs, as well as the range and effectiveness of the entity’s possible responses to the tariffs.

When using a modelling approach with multiple probability-weighted cash flow scenarios, it may be reasonable for an entity to contemplate scenarios where existing tariffs are adjusted or removed (even without a precise sunset date). Similarly, it may be reasonable for an entity to contemplate scenarios that include additional tariffs and retaliatory measures that have been proposed but have not yet been put in place. Some factors that suggest this is reasonable include the following:

• There is some market-participant sentiment that the existing tariffs and the proposal of further tariffs are negotiation tools for future trade treaties (i.e., some market participants view them as temporary, at least in part);
• Market participants’ responses to the tariffs so far may not clearly align with the view that the tariffs are permanent and share prices may not fully reflect the tariffs as permanent (however, the extent and duration of tariffs inherent in the above may not be entirely clear recognizing there may be many other factors influencing specific entity circumstances, such as the terms and duration of existing in place contracts with U.S. customers, the entity’s ability to shift production and/or sell to other markets, etc.); and
• Retaliatory measures have been introduced and designed to influence future tariff removal or adjustments; however, they may also result in other direct and indirect impacts to be considered in scenario modelling (e.g., higher input costs or general inflationary and demand pressures domestically).

Further escalation is possible and the tariffs and their impacts on trade may persist and/or not return fully to its prior state. Therefore, the scenarios and probability weightings an entity develops should consider this and any shifting market-participant perspectives.

Recognizing there is considerable uncertainty at play, an entity may need to consider multiple reasonable and supportable tariff scenarios, each with varying entity responses and impacts. The underlying inputs and probabilities assigned to these various scenarios should be established recognizing the market-participant perspective required for fair value and that the resulting fair value should be the amount an entity could realistically expect to achieve in a current exit transaction.

Determining recoverable amount in an impairment test using VIU

Similar considerations as above for FVLCD also apply for VIU. In determining VIU, it would be reasonable to use a modelling approach with multiple probability-weighted cash flows that contemplate varying scenarios. However, there are additional considerations for a VIU approach under IAS 36.

An entity will need to develop a model using entity-specific assumptions in estimating the future cash inflows and outflows to be derived from the continuing use of an asset and from its ultimate disposal. This will require management to apply significant judgment, particularly when preparing forecasts that consider the potential duration and severity of tariff-related economic impacts. These forecasts must be approved by management and/or the board of directors and may require regular updates and approvals through the date of the impairment test.

Paragraph 33(a) of IAS 36 states that projections should represent “management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset. Greater weight shall be given to external evidence.” Therefore, when using a modelling approach with multiple probability-weighted cash flow scenarios, entity-specific assumptions may contemplate that it may be reasonable to envision the future removal or adjustment to tariffs that are already in place.

The VIU model will need to abide by the limitations in paragraph 33 of IAS 36 with respect to the period covered by the forecasts (i.e., the model shall cover a maximum period of five years unless a longer period can be justified) and the growth rate to be used thereafter.

A VIU model must also abide by the restrictions in paragraph 44 of IAS 36, which do not permit the inclusion of future cash flows from future asset enhancements or restructuring activities that are not yet committed. Judgment may be required in assessing whether certain actions constitute a future restructuring and are, therefore, subject to the restrictions in IAS 36 for inclusion in VIU. These restrictions may result in VIU estimates being lower than FVLCD.

Disclosures

Management will need to consider the disclosure requirements in paragraph 125 of IAS 1 related to estimation uncertainty and the specific disclosure requirements in paragraphs 126-137 of IAS 36 related to impairment when determining what information to disclose.

Management will likely be required to exercise significant judgment in determining certain reasonable key assumptions, including its assumptions around the duration and magnitude of the tariffs, that reflect conditions existing at the balance sheet date. Detailed disclosure of an entity’s key assumptions, including probability weights if multiple scenarios are used, and the evidence they are based on, may be critical. Sensitivity analysis disclosure (i.e., whether a reasonably possible change in a key assumption could result in impairment) may also be necessary.

For condensed interim financial statements, paragraph 15 of IAS 34 Interim Financial Reporting requires relevant disclosures explaining significant changes in an entity’s financial position and performance since the end of the last annual reporting period. As a result, when there is risk of impairment, the condensed interim statements are likely to include the full suite of annual financial statement impairment testing disclosures.

Group members were asked whether they agree with the analysis presented and whether any additional considerations related to the impact of tariffs were identified.

The Group’s Discussion

The Group agreed with the analysis presented and raised several other points for consideration.

Two Group members highlighted the importance of internal consistency between the key judgments and estimates used in an entity’s financial statements and the information an entity discloses in its other filing documents. For example, if an entity’s management discussion and analysis (MD&A) includes disclosures around the potential impact of tariffs, these impacts should be reflected consistently in an entity’s impairment assessment and related disclosures in the financial statements. 

Two Group members highlighted the importance of continually reassessing whether an impairment indicator is observed because of the impact of the tariffs. Due to the evolving environment and the rapid pace at which tariffs are imposed or changed, an entity may need to be more vigilant in monitoring changes to the tariff landscape and macroeconomic factors to determine whether a new impairment indicator exists at the reporting period end that may not have existed previously, and whether the entity needs to conduct an impairment test.

One Group member acknowledged that it may be challenging for an entity to develop multiple probability-weighted cash flow scenarios to calculate the recoverable amount of an asset or CGU. They suggested that a helpful starting point for an entity could be to consider a best-case and worse-case scenario before determining whether additional scenario analysis is required. This Group member also noted that, if the cash flows in a probability-weighted cash flow model appropriately capture the impact of the tariffs, an entity should not also capture those same impacts in the discount rate. 

Some Group members also raised the following considerations:

• Entities must use market-participant assumptions when determining the FVLCD of an asset or CGU and are encouraged to consider how these assumptions may change in the current environment.
• Complying with the disclosure requirements in paragraph 125 of IAS 1 is important. This paragraph requires an entity to disclose 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 amount of its assets and liabilities within the next financial year.
• There could be circumstances when it is appropriate to consider tariffs that have been announced but not enacted at the balance sheet date in an entity’s probability-weighted cash flow scenarios, as an entity is not required to wait for a tariff to be enacted before it is included in an entity’s cash flow projections, provided that the related changes in cash flows are based on reasonable and supportable assumptions. In addition, careful consideration should be made of the nature and quality of evidence to support any scenarios included in the probability-weighted cash flow scenarios that contemplate situations where there are or will be increases, decreases or other changes to tariffs enacted or effective at the reporting date.
• An entity must carefully consider how it will be impacted by the tariffs in determining whether it can apply paragraph 99 of IAS 36. An entity should consider entity-specific information and external evidence (e.g., changes in its market capitalization) when making this determination.

Issue 2: Implications of tariffs on an entity’s onerous contract assessment (IAS 37)

Analysis

A contract is considered onerous when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from the failure to fulfill it.

An entity needs to review contracts to assess any special terms, such as force majeure clauses, which might relieve an entity from its obligations. Contracts that can be cancelled without paying compensation to the other party do not become onerous.

Under IAS 37, if a contract is considered onerous, an entity must recognize a provision, which is measured as the best estimate of the expenditure required to settle the obligation. This estimate represents the amount the entity would rationally pay to settle or transfer the obligation at the end of the reporting period.

Although in some cases the cost of tariffs borne by the importer will be passed along to their customers in the form of price increases, some existing contracts (e.g., supply or sales contracts) could potentially become onerous because of the incremental costs created by tariffs.

For example, if a purchase contract with a minimum threshold requires the purchaser to pay a substantial tariff, the contract could become loss-making if an entity’s selling prices cannot sufficiently absorb the tariff and the entity cannot increase its selling prices enough. Even absent a minimum purchase requirement, an entity’s input costs could increase because of tariffs on its direct imports or imports occurring elsewhere in its supply chain. Existing fixed price minimum volume sale contracts would need to be assessed to determine whether they have become onerous. Even though tariffs are generally paid by the purchaser, certain sales contracts may require the seller to reimburse the purchaser for the tariff costs. In such cases, the seller might find that its profit margin is insufficient to absorb the increased tariff cost, potentially leading to onerous contracts.

Paragraphs 36-44 of IAS 37 provide some guidance related to making best estimates and addressing risks and uncertainties when relevant. This guidance notes that when a single obligation is being measured, the individual most likely outcome may be the best estimate of the liability. However, even in such a case, an entity considers other possible outcomes. When other possible outcomes are either mostly higher or mostly lower than the most likely amount, the best estimate will be a higher or lower amount.

The risks and uncertainties that inevitably surround many events and circumstances shall be considered in reaching the best estimate of a provision. A risk adjustment may increase the amount at which a liability is measured. Caution is needed in making judgments under conditions of uncertainty, so that income or assets are not overstated, and expenses or liabilities are not understated.

Furthermore, in measuring a provision, IAS 37 provides guidance regarding how to consider future events:

• Paragraph 48 of IAS 37 states that: “Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.”
• Paragraph 50 of IAS 37 states that: “The effect of possible new legislation is taken into consideration in measuring an existing obligation when sufficient objective evidence exists that the legislation is virtually certain to be enacted. The variety of circumstances that arise in practice makes it impossible to specify a single event that will provide sufficient, objective evidence in every case. Evidence is required both of what legislation will demand and of whether it is virtually certain to be enacted and implemented in due course. In many cases sufficient objective evidence will not exist until the new legislation is enacted.”

An entity will, therefore, need to consider when sufficient objective evidence exists that legislation related to the tariffs is virtually certain of enactment. This will need to be considered in determining when existing tariffs will come to an end or be reduced, as well as when new tariffs that have been proposed will be virtually certain of enactment into law. Navigating the requirements of IAS 37 in the situation at hand may be challenging and require significant judgment.

Group members were asked whether they agree with the analysis presented and whether any additional considerations related to the impact of tariffs were identified.

The Group’s Discussion

The Group agreed with the analysis presented. Some Group members acknowledged that significant judgment may be required to determine when legislation or changes to legislation related to the tariffs is virtually certain of enactment in the current environment. This is because:

• many of the recent tariffs introduced by the U.S. government have been approved by executive order. Tariffs introduced in this way can be retracted, modified and/or replaced more rapidly than those introduced through conventional legislative processes; and
• the constant state of change of certain proposed tariffs may require more judgment to be applied when assessing whether the underlying legislation is virtually certain to be enacted and implemented in due course.

Some Group members also commented that in addition to assessing whether legislation related to the tariffs is virtually certain of enactment, an entity would need to consider the direct and indirect impacts of tariffs, including the inputs used to determine whether a contract is onerous and in measuring any onerous contract provision. For example, an entity might consider the impact of tariffs on the purchase cost of imported goods, as well as tariffs imposed elsewhere in the supply chain, and the impact of tariffs on expected sales prices and sales volumes, which may impact the “benefits expected to be received” under the contract. More judgment may be required when assessing the impacts of tariffs on contracts that are longer-term in nature.  

Issue 3: Implications of tariffs on an entity’s assessment of deferred tax asset (DTA) recognition (IAS 12)

Analysis

A DTA is recognized for deductible temporary differences, tax loss carryforwards and tax credits in scope of IAS 12, to the extent that it is probable sufficient future taxable profit will be available against which the deductible amounts can be utilized.

An entity must review its DTAs, both recognized and unrecognized, at each reporting date. An entity must reduce a DTA’s carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to recover the asset. A DTA should subsequently be recognized if it becomes probable that sufficient taxable profit will be available.

The recognition of a DTA is supported by the existence of taxable temporary differences (which give rise to a deferred tax liability) relating to the same taxable entity and the same taxation authority, provided that these are expected to reverse in the same period as the deductible temporary differences or in periods into which a tax loss carryforward can be carried back or forward.

When sufficient reversing taxable temporary differences are unavailable, recognition of a DTA requires reliable and supportable forecasts of future taxable profits to demonstrate the likelihood of utilization. The tariffs and further uncertainties that exist at the balance sheet date will need to be considered in an entity’s forecast of future taxable profit.

Many of these uncertainties may be challenging for an entity to model in its forecast of future taxable profits and will require significant judgment and estimation in developing assumptions. Assumptions made in a forecast of future taxable profit should generally be consistent with assumptions used in other forecasted models, such as the ones discussed in Issue 1 and Issue 2. Therefore, like other forecasts used in financial reporting, preparers will need to make assumptions about the expected duration and magnitude of tariffs and any possible changes thereto.

Paragraph 47 of IAS 12 states, “Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.”

However, the tariffs themselves are not in the scope of IAS 12 as they do not relate to income taxes or tax expenses as described or defined in the standard. The assumptions being made in relation to tariffs are like other non-income tax inputs into the forecast of future taxable profit, such as product price and demand or input costs. Therefore, it is appropriate to consider any further uncertainties that exist at the balance sheet date with respect to the tariff environment, similar to how they are considered in other forecast cash flow models.

Like the considerations for the impairment of assets, it may also be reasonable and necessary to consider multiple probability-weighted scenarios to forecast future taxable profit. However, forecasts of future taxable profits under IAS 12 are assessed on an undiscounted basis. Therefore, any risks or uncertainties that are incorporated into a discount rate in an impairment model must be reflected explicitly in the projected cash flows used for a DTA recoverability assessment (e.g., through scenario adjustments or probability weightings).

Group members were asked whether they agree with the analysis presented and whether any additional considerations related to the impact of tariffs were identified

The Group’s Discussion

The Group agreed with the analysis presented and raised several other considerations.

Two Group members recognized that an entity which has had a history of recent losses will need to consider the requirements in paragraph 35 of IAS 12 to determine whether its DTAs are recoverable. The tariffs may create more uncertainty over whether there is convincing other evidence that an entity will have sufficient future taxable profit against which its tax losses can be utilized.

Two Group members observed that when assessing a DTA for recoverability, an entity is not evaluating whether to recognize a liability for tariff payments under IFRIC 21 Levies. Therefore, an entity should not wait for proposed tariffs to be enacted or substantively enacted into law before considering how these tariffs could affect its forecast of future taxable profits.

One Group member noted that an entity may have made changes to its transfer pricing arrangements in response to the tariffs and, as a result, should consider whether any uncertain tax positions have been created. IFRIC 23 Uncertainty over Income Tax Treatments provides the accounting and disclosure considerations when there is uncertainty over income tax treatments.

 

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¹ For manufacturing entities, unallocated fixed overhead costs attributable to operations below normal capacity would need to be expensed and not capitalized to inventory.

² This concept does not apply to an intangible asset with an indefinite useful life (or that is not yet available for use) and goodwill. Paragraph 10 of IAS 36 requires these assets to be tested for impairment at least annually.

³ The Group previously discussed the application of this paragraph at its May 30, 2017, meeting 

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Issue 4: Implications of tariffs on an entity’s assessment of events after the reporting period (IAS 10) 

Analysis

“Events after the reporting period” are defined in paragraph 3 of IAS 10 as “those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue.”

Paragraph 3 of IAS 10 also describes two types of events that can be identified:

• adjusting events that provide evidence of conditions that existed at the balance sheet date; and
• non-adjusting events that are indicative of conditions that arose after the balance sheet date.

Entities impacted by the tariffs will need to consider the requirements in IAS 10 related to subsequent events. Certain developments after the balance sheet date may be non-adjusting events.

For example, the enactment of a new tariff after the balance sheet date may be a non-adjusting event; however, it may confirm and/or may further inform how an entity reflected existing uncertainty at the balance sheet date with regards to the proposed tariffs in, for example, impairment testing. Therefore, a non-adjusting event cannot be ignored.

While it is necessary and appropriate that forward-looking information incorporate the uncertainty that was present at a balance sheet date, it would generally not be appropriate to revise that forward-looking information to fully reflect a non-adjusting event. For example, the understanding on March 31, 2025, of upcoming U.S. announcements about reciprocal tariffs on April 2, 2025, and possible retaliatory actions, likely affected forward-looking information used for the March 31, 2025, interim financial statements. However, reasonable assumptions as of March 31, 2025, about these uncertainties would not be adjusted to fully reflect actual events that occurred after the balance sheet date.

Finally, disclosure of material non-adjusting subsequent events is required, including an estimate of the financial effect of the event, if possible, or a statement that such an estimate cannot be made.

Group members were asked whether they agree with the analysis presented and whether any additional considerations related to the impact of tariffs were identified.

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

Background

IFRS 18 Presentation and Disclosure in Financial Statements will replace existing IAS 1 Presentation of Financial Statements. While IFRS 18 will not change how entities recognize and measure items in the financial statements, it will affect how they present and disclose those items, especially in the income statement.

IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, with early application permitted, and is applicable retrospectively. Entities with December 31 year-ends will be required to present any new income statement categories and subtotals arising from the application of IFRS 18 in the interim financial statements in the first year of adoption (i.e., Q1 of 2027). These entities will need to have any changes to systems, processes and controls in place from January 1, 2026, to produce the required comparative information. The Group discussed IFRS 18 implementation issues at its September 2024 meeting.

IFRS 18 introduces the concept of MPMs and requires their disclosure in the financial statements, making them part of the audited financial statements for the first time. 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-GAAP measures that are commonly used by companies today.

For the purposes of applying IFRS 18, public communications include management commentary (e.g., MD&A), press releases, and investor presentations. However, they do not include oral communications (and their transcripts) and social media posts. Companies may need to adjust the systems and processes that govern their public communications to identify, capture, and analyze those currently used performance metrics that will qualify as MPMs under IFRS 18. This is not a one-off exercise. Entities will need to perform this exercise each reporting period, including interim periods, to facilitate disclosure of reconciliations of MPMs to the most directly comparable IFRS Accounting Standards subtotals, including tax effects and effects on non-controlling interests. The explicit requirement for MPM disclosures in the condensed interim financial statements will involve additional effort as there is no relief from the reconciliation requirement.⁴

While IFRS 18’s disclosure requirements for MPMs apply to the financial statements, Canadian Securities Administrators’ National Instrument (NI) 52-112 Non-GAAP and Other Financial Measures Disclosure sets out disclosure requirements for non-GAAP financial measures, non-GAAP ratios, and other financial measures outside the financial statements. NI 52-112 is effective as of August 25, 2021. Canadian securities regulators expect to update NI 52-112 to ensure that all financial measures traditionally considered non-GAAP continue to be regulated under the instrument when disclosed outside the financial statements.

The MPM requirements apply to all entities applying IFRS Accounting Standards, publicly listed or private. If a private entity communicates subtotals that meet the definition of MPMs, that entity would be required to apply the related MPM disclosure requirements in IFRS 18. However, if an entity does not communicate such subtotals outside its financial statements, the MPM disclosure requirements would not apply.

Issue 1: What types of measures meet the definition of MPMs?

Analysis

Paragraph 117 of IFRS 18 defines an MPM as a subtotal of income and expenses that (see paragraphs B113-B122 of IFRS 18):

1. an entity uses in public communications outside financial statements;
2. 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
3. is not listed in paragraph 118 of IFRS 18, or specifically required to be presented or disclosed by IFRS Accounting Standards.

Paragraph 118 of IFRS 18 lists the following subtotals of income and expenses that are not MPMs:

1. gross profit or loss (revenue minus cost of sales) and similar subtotals (see paragraph B123);
2. operating profit or loss before depreciation, amortization and impairments within the scope of IAS 36;
3. operating profit or loss and income and expenses from all investments accounted for using the equity method;
4. for an entity that applies paragraph 73, a subtotal comprising operating profit or loss and all income and expenses classified in the investing category;
5. profit or loss before income taxes; and
6. profit or loss from continuing operations.

Even though the subtotals listed in paragraph 118 of IFRS 18 are not defined in IFRS Accounting Standards, they are commonly understood and the reconciliation to totals or subtotals required by IFRS Accounting Standards is apparent from the face of the income statement. Therefore, they are not subject to the disclosure requirements for MPMs.

Paragraph B116 of IFRS 18 lists the following as not being MPMs because they are not subtotals of income and expenses:

1. subtotals of only income or only expenses (e.g., adjusted revenue, cash-paid salary costs);
2. assets, liabilities, equity or combinations of these elements (e.g., net debt);
3. financial ratios (e.g., return on assets);
4. measures of liquidity or cash flows (e.g., free cash flows); or
5. non-financial performance measures (e.g., number of subscribers, store floor space, product volumes).

The term “subtotal” is not defined and IFRS 18 does not restrict the composition of the subtotal to amounts only measured and recognized in accordance with IFRS Accounting Standards, nor does it prescribe how an IFRS Accounting Standards subtotal might be “adjusted” by management. This appears intentional as paragraph BC331 in the Basis for Conclusions notes (italics added for emphasis):

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 MPMs.

One can also infer this from 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 the MPM and the most directly comparable IFRS Accounting Standard subtotal.

The Group discussed a series of examples and compared them to the definition of MPMs and related guidance in IFRS 18. The Group assumed that the subtotals are publicly communicated and comply with the disclosure requirements in NI 52-112.

Example 1: Subtotal of income and expenses that adjusts for IFRS Accounting Standards–compliant amounts

Some subtotals add or subtract a non-cash item from an IFRS Accounting Standards–compliant profit-or-loss measure. For example, share-based compensation recognized under IFRS 2 Share-based Payment, goodwill impairment losses or reversals recognized under IAS 36 Impairment of Assets, or fair value gains and losses recognized under IFRS 13 Fair Value Measurement might be added to or subtracted from profit or loss.

Other subtotals adjust for unusual or non-recurring items of income or expenses recognized during the period. For example, legal costs incurred or gains from legal settlements, transaction costs incurred in relation to business acquisitions, insurance losses or recoveries from claims, or restructuring costs incurred might be added to or subtracted from profit or loss. Entities typically label these subtotals as, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA); adjusted net earnings; or variations thereof.

Example 2: Subtotal of income and expenses that adjusts for non–IFRS Accounting Standards–compliant accounting policies

Some subtotals adjust an IFRS Accounting Standards–compliant profit-or-loss measure for amounts that do not comply with IFRS Accounting Standards recognition and measurement requirements. For example, some subtotals might:

• adjust net profit to recognize revenue over time when IFRS 15 Revenue from Contracts with Customers requires it to be recognized at a point in time;
• adjust net profit to include the entity’s proportionate share of income from its joint venture, instead of applying the equity method; or
• adjust operating income to reverse the impact of applying IFRS 16 Leases and, instead, record all rent expense on a straight-line basis evenly over the reporting period.

Another example might include adjusting an IFRS Accounting Standards subtotal to communicate a performance measure on a constant-currency basis (this is not compliant with IAS 21 The Effects of Changes in Foreign Exchange Rates). Companies with global operations might disclose this type of subtotal. Under this approach, the entity applies the same fixed exchange rate when translating foreign currency items into the functional currency in both the current and comparative periods. For example, the entity might apply the prior year’s exchange rates to the current-year subtotal (a multiplication exercise).

Group members were asked whether they agree that the subtotals discussed in Example 1 and Example 2 represent potential MPMs and whether there are other factors that should be considered.

The Group’s Discussion

The Group agreed with the analyses of Example 1 and Example 2 and thought the subtotals discussed in these examples might meet the definition of an MPM. However, the Group noted that entities would need to consider specific facts and circumstances to determine whether a particular reported metric meets the definition of an MPM. One Group member thought that paragraph B134(b) of IFRS 18 in the application guidance also supports the view that the metrics highlighted in Example 2 can be MPMs. This paragraph notes that additional disclosure is required when the calculation of an MPM differs from accounting policies required or permitted by IFRS Accounting Standards. Therefore, it indirectly affirms that subtotals of income and expenses that adjust for non–IFRS Accounting Standards–compliant accounting policies are MPMs.

One Group member questioned whether EBITDA or adjusted EBITDA or both meet the definition of an MPM if an entity also discloses this amount in their financial statements to comply with capital management disclosure requirements in accordance with paragraphs 126-127 of IFRS 18. For example, an entity might disclose adjusted EBITDA in their financial statements because it uses adjusted EBITDA to monitor capital or has a loan covenant based on this metric. They thought this metric might not meet the definition of an MPM because, in this case, the entity would be required to disclose it to comply with paragraphs 126-127 of IFRS 18. Therefore, it would be exempt from the MPM disclosure because the definition of an MPM excludes items specifically required to be disclosed by IFRS Accounting Standards (paragraph 117(c) of IFRS 18). Furthermore, management might not use this metric to assess the entity’s financial performance. Another Group member noted that there is a rebuttable presumption in paragraph 119 of IFRS 18 that a subtotal of income and expenses that an entity uses in public communications outside its financial statements meets the definition of an MPM. Entities are permitted to rebut this presumption if they have reasonable and supportable information available to demonstrate the basis for this assertion. Therefore, the Group member thought that, depending on the facts and circumstances, by applying this rebuttable presumption, an entity could conclude that its adjusted EBITDA does not meet the definition of an MPM.

Another Group member thought it is unclear whether the reporting of a subtotal on a constant-currency basis meets the definition of an MPM. They thought this might be considered the reporting of a hypothetical scenario, which, in their view, does not qualify as an MPM. However, other Group members agreed that this could be considered an MPM, depending on the facts and circumstances. They thought this metric depicts an entity’s actual performance for the period, adjusted to exclude the impact of foreign currency fluctuations.

One Group member highlighted that, in discussing these examples, the Group assumed that the reported metrics comply with NI 52-112. They noted that this assumption ensured the discussion focused on the accounting definition of an MPM rather than including a discussion on whether the metrics comply with NI 52-112. They also noted that a private entity applying IFRS Accounting Standards is not bound by the same regulations regarding its disclosures of non-GAAP metrics outside the financial statements. Therefore, a private entity might face additional challenges in identifying its public disclosures and determining whether any of them include metrics that meet the definition of an MPM.

Example 3: Subtotal of income and expenses most directly comparable to an IFRS Accounting Standards expense item

Gold-mining companies often refer to recommendations of the Gold Institute Production Cost Standard and the definitions set out by the World Gold Council when describing their non-GAAP measures. A subtotal commonly used by gold-mining companies is “cash operating costs.” Gold-mining companies use this subtotal to disclose the net cost to produce and sell gold. When calculating this subtotal, entities start with an IFRS Accounting Standards–compliant cost measure, such as cost of sales or production costs. They then adjust it to include by-product sales (which is revenue under IFRS 15) and exclude items such as royalty expense, selling, and refining expenses. “Total cash costs” is another measure commonly reported by gold-mining companies and is typically calculated by adding royalty expense back to cash operating costs.

Some entities adjust “total cash costs” further to arrive at “all-in sustaining costs” (AISC) or “all-in costs”. These metrics typically include adjustments for items such as corporate general and administrative expenses, reclamation accretion, exploration costs, and capital expenditures. The most directly comparable IFRS Accounting Standards measure for “cash operating costs” and “AISC” provided in the MD&A is “production cost”.

Group members were asked whether they think any of the subtotals discussed in Example 3 represent potential MPMs and whether there are any other factors that should be considered.

The Group’s Discussion

The Group agreed that, depending on the specific facts and circumstances, the metrics in Example 3 might meet the definition of an MPM. However, several Group members thought entities will often need to apply significant judgment to determine if a metric meets the definition of an MPM. They also noted that the definition of an MPM is quite broad and that entities might interpret it in different ways. They thought this might lead to diversity in the application of the requirements.

Some Group members noted that in some cases it might be unclear whether a metric represents management's view of an aspect of the entity’s financial performance as a whole. For example, if the measure only pertains to operations in a particular region or a particular subset of the entity’s operations (e.g., one mine), they thought that the standard is unclear on whether this would represent “an aspect of the entity’s financial performance as a whole.” Some members also noted that some of the metrics highlighted in this example include by-product sales that may be insignificant or immaterial to the entity. They questioned whether the standard intends that cost metrics with minimal by-product sale adjustments would qualify as a “subtotal of income and expenses,” and, therefore, an MPM to be scoped into the IFRS 18 MPM disclosure requirements. Finally, one Group member questioned whether some of the metrics highlighted in this example represent a measure of the entity’s performance or a cash flow measure. If a metric is a cash flow measure, they noted it would not meet the definition of an MPM.

Since the Group thought entities might reach diverse conclusions on the application of certain of the requirements in IFRS 18 for identifying an MPM (e.g., what is “an aspect of the financial performance of the entity as a whole”), it recommended that the AcSB monitor the evolution of the application of the MPM requirements and consider discussing this issue with IASB staff and potentially raising it with the IFRS Interpretations Committee.

Example 4: Subtotal of income and expenses based on hypothetical events or transactions

Some entities disclose subtotals that include the results of hypothetical events or transactions. For example, some subtotals might include the following:

• Adjusting IFRS Accounting Standards profit or loss to include revenue that is not yet earned under IFRS 15, but is based on the company’s confirmed sales contracts (i.e., “revenue in the pipeline”); and
• Adjusting IFRS Accounting Standards profit or loss for the impact of a unique event to portray a financial result as if the event did not occur. For example, profit or loss might be adjusted to include revenue lost during a power outage, hurricane, or pandemic lockdown. Alternatively, profit, or loss might be adjusted to exclude incremental losses arising from one of these events. For example, extra credit losses, or other impairments might be removed to arrive at a normalized financial result.

View 1.4A – Hypothetical adjusted subtotals can meet the definition of an MPM

Proponents of this view note that the definition of “MPMs” is broad with little restriction, and that there is no requirement for an MPM to be recognized and measured in accordance with IFRS Accounting Standards. They think one can infer this from the requirement in paragraph B134(b)(ii) of IFRS 18, which requires an entity to provide specific information where “the calculation of the measure differs from accounting policies required or permitted by IFRS Accounting Standards.” Additionally, they note that paragraph BC357 in the Basis for Conclusions for IFRS 18 says, “The IASB decided it would place no specific restrictions on how an entity calculates a subtotal of income and expenses that is a management-defined performance measure. The IASB concluded such restrictions might prevent an entity from disclosing measures that users of financial statements find useful.”

The challenging aspect of the financial reporting requirements for MPMs is complying with the disclosure requirements in paragraph 123 of IFRS 18. That is, labelling and describing the measure in a way that faithfully represents its characteristics, providing a reconciliation, and disclosing how the measure is calculated can be challenging. The discussion in IFRS 18 of a faithful depiction is only in the context of labelling and describing the MPM, rather than whether the MPM is a faithful depiction of performance (paragraphs B134-B135 of IFRS 18). As noted in paragraph BC360 of the Basis for Conclusions, “Faithful representation does not in itself convey other information about the measure. For example, it does not provide information about whether a measure is a ‘good’ or ‘bad’ measure. A management-defined performance measure is only required to faithfully represent the aspect of performance being communicated.”

Group members were asked to discuss their views on Example 4 and whether there are any other factors that should be considered.

Analysis

While financial ratios do not meet the definition of an MPM, paragraph B117 of IFRS 18 states that “a subtotal that is the numerator or denominator in a financial ratio is a management-defined performance measure if the subtotal would meet the definition of a management-defined performance measure if it were not part of a ratio.” Consequently, a numerator or denominator might meet the definition of an MPM even if it is not included in a public communication on its own, as long as the ratio that it is part of is included in a public communication. For example, consider a product manufacturer that publicly communicates a ratio of adjusted gross profit margin, which is calculated as follows:

(sales revenue – cost of goods sold) – inventory carrying charges⁵
sales revenue

Consider another example of an oil and gas producer that publicly communicates an operating netback on a per-barrel of oil equivalent basis ($/BOE), which is calculated as follows:

(sales – royalty expense – production and transport expenses)
sales volumes

 

The numerator in both examples is a subtotal of income and expenses. Although the numerator itself is not publicly communicated, it is part of a ratio that is used in public communications. 

The Group’s Discussion 

The Group agreed with the analysis. One Group member noted that paragraph B117 of IFRS 18 ensures that MPM disclosures are complete and that no MPMs are excluded from the disclosure simply because they are part of a ratio.

Some Group members thought that when assessing whether a financial ratio meets the definition of an MPM, entities might face similar challenges to those raised during their discussions of Examples 1-3 in Issue 1. They thought that since entities might interpret the definition of an MPM in different ways, they might reach diverse conclusions on whether a financial ratio meets this definition.

One Group member raised an example of an integrated oil company with significant upstream and downstream operations. If the entity discloses a financial ratio related to their upstream operations only, they questioned whether this metric represents management's view of an aspect of the financial performance of the entity as a whole. However, they noted the same metric reported by an entity that is upstream only would likely meet the definition of an MPM if it also meets the other criteria in paragraph 117 of IFRS 18.

Another Group member thought an entity might need to consider why it discloses a particular ratio when determining whether it meets the definition of an MPM. For example, they suggested that a ratio might not be an MPM if management only discloses it for comparability with other entities in their industry. In this case, they thought the ratio might not communicate management's view of an aspect of the entity’s financial performance. By applying the rebuttable presumption in paragraph 119 of IFRS 18, they thought the entity might not be required to include the ratio in their MPM disclosure.

Since entities might reach diverse conclusions on the application of the requirements for identifying whether financial ratios are MPMs (for reasons similar to those raised above for Issue 1 Examples 1-3), the Group recommended the AcSB monitor the evolution of the application of the MPM requirements and consider raising this issue with IASB staff and potentially raising it with the IFRS Interpretations Committee. 

Analysis

Paragraphs 23 and 25 of IFRS 8 require 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 measured in accordance with IFRS Accounting policies used to prepare the IFRS Accounting Standards financial statements. It is based on the management approach, (i.e., information reported internally to the chief operating decision maker (CODM)).

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 (paragraph B132 of IFRS 18).

Paragraph 117 of IFRS 18 defines an MPM as a subtotal of income and expenses that: 

1. an entity uses in public communications outside financial statements;
2. 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
3. is not listed in paragraph 118, or specifically required to be presented or disclosed by IFRS Accounting Standards. 

To explore the interaction of MPMs with segmental reporting of subtotals, the Group considered the following fact pattern: 

• An entity has two operating segments, each contributing approximately 50 per cent to the entity’s net profit.
• Each operating segment contains a single main business activity.
• The segments cannot be aggregated under IFRS 8 as they do not have similar economic characteristics. Consequently, they are reported separately.
• The segment measure of profit or loss reported under paragraph 23 of IFRS 8 for Segment 1 and Segment 2 is adjusted profit, and it is used in public communications; it is not reported on the income statement. 

The Group discussed whether the segment measure, adjusted profit, meets the definition of an MPM. Given the criteria in paragraph 117(a) of IFRS 18 is met, the discussion focused on the criteria in paragraph 117(b) and/or 117(c). 

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⁴ IFRS 18 introduces consequential amendments to IAS 34 Interim Financial Reporting that require entities to provide the additional disclosures for MPMs in their interim financial statements. However, only MPMs that relate to the entity’s performance in the interim reporting period need to be included in the interim financial statements.

⁵ Inventory carrying costs include insurance and taxes, warehouse rent and utilities, security systems and monitoring and write-downs due to shrinkage.

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OTHER MATTERS

Recent IFRS Interpretations Committee (the Interpretations Committee) Agenda Decisions

In April 2025, the IASB ratified the IFRS Interpretations Committee’s agenda decision on Guarantees Issued on Obligations of Other Entities. The agenda decision clarifies how an entity accounts for guarantees that it issues on obligations of a joint venture. The Interpretations Committee concluded that an entity applies judgment in determining which IFRS Accounting Standard applies, considering the specific facts and circumstances and the terms and conditions of the guarantee contract. 

Recent Amendments Made to IFRS Accounting Standards

Contracts Referencing Nature-dependent Electricity – Amendments to IFRS 9 and IFRS 7 

On December 18, 2024, the IASB issued amendments to help entities report the financial effects of nature-dependent electricity contracts, which are often structured as power purchase agreements. Nature-dependent electricity contracts help companies to secure their electricity supply from sources such as wind and solar. The amount of electricity generated under these contracts can vary based on uncontrollable factors such as weather conditions. The IASB noted that IFRS Accounting Standards requirements may not have been adequately capturing how these contracts affect a company’s performance. To allow companies to better reflect these contracts in the financial statements, the IASB has made targeted amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The amendments include: 

• clarifying the application of the “own-use” requirements;
• permitting hedge accounting if these contracts are used as hedging instruments; and
• adding new disclosure requirements to enable investors to understand the effect of these contracts on a company’s financial performance and cash flows. 

These amendments are effective for annual reporting periods beginning on or after January 1, 2026, with early application permitted. 

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