Introduction to IFRS 18 and Revenue Reporting
In today’s financial world, transparency and consistency in revenue reporting have never been more important. Whether you’re an investor comparing companies across continents or a CFO preparing consolidated financials, clear and comparable revenue information is crucial. That’s where the new IFRS 18 standard comes in—a significant step forward in global financial reporting.
Issued by the International Accounting Standards Board (IASB), IFRS 18 Revenue replaces the widely adopted IFRS 15, aiming to resolve some of the long-standing concerns raised by preparers, auditors, and users of financial statements. While IFRS 15 laid the groundwork for a unified model of revenue recognition, practical challenges and inconsistent application across industries and jurisdictions revealed the need for improvement. IFRS 18 responds to those challenges with a sharper focus on performance, disclosure, and comparability.
So what exactly is new? And more importantly, what does it mean for businesses reporting under IFRS? IFRS 18 doesn’t reinvent the revenue wheel, but it fine-tunes it. The standard retains the five-step model from IFRS 15, but introduces more structured requirements for disaggregation of revenue, presentation in financial statements, and enhanced disclosure objectives.
This article will walk you step-by-step through what IFRS 18 entails, how to apply it, and what its adoption means for global businesses. Whether you’re in accounting, finance, audit, or simply trying to make sense of financial statements, understanding IFRS 18 is key to staying ahead in an increasingly regulated and interconnected world.
Let’s dive into the background of this new standard, and why it’s considered one of the most impactful changes to IFRS in recent years.
Background: Why IFRS 18 Was Introduced
When the IASB issued IFRS 15 Revenue from Contracts with Customers back in 2014, it was hailed as a major milestone—finally offering a single, principles-based framework for revenue recognition. It aimed to bring consistency across industries and geographies, replacing a patchwork of previous standards with a unified approach. For many companies, IFRS 15 worked well. However, over the years, a range of practical concerns and interpretive challenges emerged, leading to questions about its long-term suitability.
So why was IFRS 18 introduced?
The IASB conducted an extensive post-implementation review (PIR) of IFRS 15 and found that while the five-step model was conceptually sound, its application sometimes fell short of meeting users’ expectations. One of the major concerns was around disclosure. Investors and analysts often struggled to extract meaningful insights from revenue disclosures that were too aggregated, overly boilerplate, or not clearly linked to performance.
Another issue was the lack of comparability. Even when companies followed the standard faithfully, the way they applied judgment—especially around performance obligations and allocation of revenue—varied widely. This made it harder for users to compare companies, especially across different industries or countries.
Preparers also voiced their concerns. Many found the disclosure requirements burdensome and complex, while auditors flagged inconsistencies and interpretive grey areas. National standard setters and regulators echoed these concerns, prompting the IASB to act.
Enter IFRS 18, not as a complete overhaul, but as a refinement. It builds on IFRS 15’s core principles but responds directly to feedback by improving presentation, enhancing disclosure objectives, and tightening up comparability. It aims to strike a better balance between providing relevant information to users and being practical for preparers to implement.
In essence, IFRS 18 is an evolution driven by global feedback—designed to make revenue reporting clearer, more useful, and more aligned with real-world business performance.
Key Principles of IFRS 18 Revenue
IFRS 18 doesn’t seek to reinvent revenue recognition—it builds on the solid foundation of IFRS 15’s five-step model. The goal is not to change what revenue is, but to improve how it’s presented, understood, and compared. The key principles of IFRS 18 reflect a more refined and transparent approach to telling the revenue story of a company—one that works better for investors, regulators, and preparers alike.
1. Continued Use of the Five-Step Model
At its core, IFRS 18 retains the same five-step framework for recognizing revenue that was introduced in IFRS 15:
- Identify the contract with a customer
- Identify the performance obligations
- Determine the transaction price
- Allocate the transaction price
- Recognize revenue when (or as) performance obligations are satisfied
These steps remain unchanged, as feedback showed they were conceptually sound and widely adopted. The changes IFRS 18 brings are not to this structure, but to how the outcomes of this process are presented and disclosed.
2. Enhanced Disaggregation of Revenue
One of the most significant enhancements in IFRS 18 is its requirement for more detailed disaggregation of revenue. While IFRS 15 encouraged companies to break down revenue into meaningful categories, many disclosures ended up being too generic or vague.
IFRS 18 introduces specific disclosure objectives that require companies to clearly explain how different types of revenue relate to business performance and cash flows. This might mean breaking revenue down by product line, customer type, geography, or contract duration—depending on what’s most relevant to users of the financial statements.
3. Standardized Line Items in the Income Statement
Another notable change is the introduction of standardized line items for revenue in the statement of profit or loss. Under IFRS 18, companies are required to present revenue and related costs in a more consistent structure, which includes:
- Revenue from contracts with customers
- Contract costs
- Contract assets and liabilities
This aims to improve comparability across entities and industries, reducing the flexibility that previously led to inconsistent presentation.
4. Clearer Disclosure Objectives
IFRS 18 emphasizes why disclosures are made, not just what to disclose. The standard introduces clear disclosure objectives, pushing companies to provide narrative explanations and quantitative details that genuinely help users understand the nature, timing, and uncertainty of revenue and cash flows.
In short, boilerplate text and minimal tables won’t cut it anymore. Disclosures must be tailored, relevant, and directly tied to business performance.
5. Focus on Consistency and Comparability
Lastly, a key principle underpinning IFRS 18 is its focus on consistency in application and comparability across companies. The refined presentation and disclosure requirements are designed to reduce ambiguity and make financial statements more intuitive—especially for cross-border users like investors and analysts.
Step-by-Step Guide to Applying IFRS 18
While IFRS 18 enhances disclosure and presentation requirements, it maintains the core five-step model for revenue recognition introduced in IFRS 15. This continuity helps businesses transition smoothly, while also setting clearer expectations for financial statement users. Below is a practical, step-by-step guide to applying IFRS 18—complete with explanations and an illustrative example.
Step 1: Identify the Contract with a Customer
Revenue recognition begins with a legally enforceable contract. Under IFRS 18, a contract exists when:
- The parties have approved the agreement.
- Each party’s rights and obligations are identifiable.
- Payment terms can be determined.
- The contract has commercial substance.
- It’s probable that the entity will collect the consideration.
This step ensures there’s a valid basis for recognizing revenue and that it reflects the economic reality of a business transaction.
Step 2: Identify the Performance Obligations
Next, a company must identify all distinct goods or services promised to the customer. Each of these is considered a performance obligation.
For instance, if a tech company sells software with future updates and customer support, each of those elements (license, updates, support) might be separate obligations—depending on how integrated they are.
A performance obligation is considered “distinct” if the customer can benefit from it on its own and it can be separately identified from other promises in the contract.
Step 3: Determine the Transaction Price
This is the total amount of consideration the company expects to receive in exchange for transferring goods or services. It may include:
- Fixed amounts
- Variable consideration (e.g., discounts, bonuses, penalties)
- Non-cash consideration
- Consideration payable to the customer
IFRS 18, like IFRS 15, requires companies to estimate variable consideration using either the expected value or most likely amount—whichever better predicts the outcome.
Step 4: Allocate the Transaction Price to Performance Obligations
If a contract has multiple performance obligations, the transaction price must be allocated to each one based on its standalone selling price. If prices aren’t directly observable, they must be estimated using methods like:
- Adjusted market assessment
- Expected cost plus a margin
- Residual approach (in certain limited cases)
This ensures revenue is recognized in a way that reflects the economic value of each part of the contract.
Step 5: Recognize Revenue When (or As) Obligations Are Satisfied
Revenue is recognized over time or at a point in time, depending on when the customer obtains control of the promised goods or services.
- Over time: When the customer simultaneously receives and consumes the benefits (e.g., subscription services or construction work-in-progress).
- Point in time: When control transfers at once (e.g., a product shipment).
The standard requires clear judgment here, guided by indicators such as legal title, physical possession, risks and rewards, and customer acceptance.
Illustrative Example: Software License with Updates
Let’s walk through a simple example:
Scenario: A software company sells a one-year software license for $900 and includes free quarterly updates and technical support.
- Step 1: There’s a valid contract signed by the customer.
- Step 2: The license, updates, and support are three distinct performance obligations.
- Step 3: The transaction price is $900.
- Step 4: Based on standalone prices:
- License: $600
- Updates: $200
- Support: $100
So, the $900 is allocated accordingly.
- Step 5:
- The license is recognized at the point of delivery.
- Updates and support are recognized over time, throughout the year.
This approach provides a clearer picture of how and when revenue is earned, aligning accounting with economic activity.
How IFRS 18 Refines This Process
The steps remain the same as IFRS 15, but IFRS 18 enhances how these outcomes are presented and disclosed:
- Revenue from each obligation must be disaggregated meaningfully.
- Contract balances (assets and liabilities) must be reported transparently.
- Narrative disclosures must explain timing, risks, and variability of revenue streams.
The goal is not just to report revenue—but to tell the story behind it.
By following this five-step approach under IFRS 18 and embracing the new presentation and disclosure expectations, businesses can deliver more insightful financial reports that meet the evolving needs of stakeholders.
Industry-Specific Implications
While IFRS 18 applies across all industries, its impact is not uniform. Different sectors have unique revenue models, customer relationships, and contract complexities—which means the new presentation and disclosure requirements could significantly reshape how financial results are interpreted. Let’s look at how IFRS 18 may affect some key industries:
Technology
Tech companies often deal with bundled contracts, including licenses, updates, cloud services, and support. Under IFRS 18, these businesses will need to clearly disaggregate revenue streams and align disclosures with contract performance. Investors can expect more granular visibility into how much revenue relates to upfront license sales versus recurring services. The days of lump-sum revenue reporting may be over—transparency is the new standard.
Additionally, disclosures about performance obligations and variable consideration (like usage-based fees or service-level bonuses) will become more detailed, helping users assess the sustainability of recurring revenue models.
Construction and Engineering
In construction, revenue is often recognized over time using input or output methods. IFRS 18 won’t change that core recognition, but it will demand richer disclosures around:
- How performance is measured
- How progress is assessed
- How contract assets and liabilities evolve over time
Contract modifications, a common feature in this sector, must also be clearly explained in the new disclosure format, ensuring greater comparability and reducing information gaps between companies.
Retail and Consumer Goods
Retailers may not see dramatic changes in recognition mechanics, but presentation and disaggregation will be key. Loyalty programs, gift cards, and returns—previously lumped together—will now require clearer explanation. For example, the performance obligation from a loyalty program must be broken out and matched to deferred revenue in the balance sheet.
Retail companies must now tell the full story of how revenue is earned, especially in multi-channel and e-commerce environments.
Financial Services
Banks and insurers often have complex fee-based revenue arrangements. IFRS 18 enhances requirements for contract-based fees and non-interest income, making financial institutions explain:
- The nature of services rendered
- How timing and variability affect revenue
- How fees tie into client relationships
This is crucial for comparability across financial players, especially as fintech and traditional banking models converge.
Each industry will face its own challenges—but also its own opportunities to deliver more meaningful and decision-useful information under IFRS 18.
Comparing IFRS 18 with IFRS 15 and ASC 606
While IFRS 18 retains the core framework of its predecessor, IFRS 15, it introduces targeted refinements—particularly around presentation and disclosure. These changes aim to address areas where IFRS 15 fell short, without disrupting the broader revenue recognition model that many companies spent years implementing.
From a recognition standpoint, IFRS 18 and IFRS 15 are very similar. Both follow the five-step model, and key definitions around contracts, performance obligations, and transaction price allocation remain intact. What’s different is the emphasis IFRS 18 places on how information is reported, especially in financial statements and footnotes.
For example, IFRS 18 introduces more structured line items in the income statement, such as clearly labeled revenue from contracts with customers and related contract costs. This improves consistency between companies and industries. It also adds disclosure objectives that go beyond box-ticking—encouraging entities to provide insightful, tailored commentary instead of generic or boilerplate text.
When comparing IFRS 18 to U.S. GAAP’s ASC 606, the fundamentals again align closely, as both standards were initially developed through a joint effort between the IASB and FASB. However, IFRS 18 begins to diverge slightly from ASC 606 by placing a heavier emphasis on disclosure transparency and standardized financial presentation. Over time, these differences may widen, especially as the IASB and FASB respond independently to feedback and industry developments.
For multinational companies reporting under both frameworks, it will be important to monitor the growing gap between IFRS 18 and ASC 606—not just in technical content, but in investor expectations and regulatory scrutiny.
Ultimately, IFRS 18’s changes are more evolutionary than revolutionary—but they represent a clear shift toward making revenue reporting more useful, comparable, and investor-friendly on the global stage.
Impact on Financial Statements and Disclosures
One of the most noticeable changes under IFRS 18 is how revenue-related information appears in the financial statements and accompanying disclosures. While the recognition rules remain largely intact from IFRS 15, the new standard brings sharper clarity to how revenue is presented, explained, and interpreted.
In the income statement, IFRS 18 introduces a more standardized structure. Entities must now separately present:
- Revenue from contracts with customers
- Contract assets and liabilities
- Contract-related costs
This shift helps users quickly understand the nature and timing of revenue, especially when comparing across companies or industries. Previously, some companies aggregated revenue sources or buried critical information in footnotes—practices IFRS 18 now aims to eliminate.
The disclosure requirements are also significantly enhanced. IFRS 18 moves away from a checklist approach and instead introduces clear disclosure objectives. Companies are expected to:
- Explain the types and timing of revenue streams
- Describe performance obligations and when they are satisfied
- Highlight judgment areas (e.g., estimating variable consideration)
- Provide roll-forwards of contract balances
In addition, disclosures must be tailored and informative—boilerplate text is no longer acceptable. Entities need to “connect the dots” between what’s reported on the face of the statements and the underlying business activity.
Finally, for companies transitioning from IFRS 15 to IFRS 18, it’s important to assess internal systems, processes, and chart of accounts, as these may need updates to support the new line-item structure and disclosure demands.
IFRS 18 doesn’t just tell companies what to report—it asks them to explain why it matters to financial statement users.
Challenges and Practical Considerations
While IFRS 18 builds on existing principles, its new presentation and disclosure requirements introduce real-world implementation challenges. One of the most immediate hurdles is the need to update internal systems and reporting processes. Many finance teams will need to re-map revenue data to meet the new line-item structure and create more detailed disaggregation reports.
Another key challenge is judgment and interpretation. Companies will need to exercise greater professional judgment when determining how to disaggregate revenue or explain performance obligations—often requiring input from cross-functional teams, not just finance.
There’s also a training burden. Finance staff, auditors, and management all need to understand not only the mechanics of the new standard but also its intent—telling a clearer revenue story to users.
Lastly, audit and regulatory scrutiny will likely increase as IFRS 18 rolls out. Preparers must be ready to defend their disclosures and ensure consistency across periods.
Transition planning should start early—this is not just a compliance update, but a mindset shift.
Future Outlook and Global Adoption
IFRS 18 marks a pivotal evolution in global revenue reporting, and its rollout is being closely watched by regulators, investors, and standard-setters alike. As the effective date approaches, countries applying IFRS are expected to begin early preparation, with adoption timelines likely synchronized with other major standards for seamless transition.
The IASB has signaled its intent for IFRS 18 to enhance investor confidence by improving the clarity, consistency, and comparability of revenue reporting across sectors. Over time, this may influence even non-IFRS jurisdictions, especially where dual reporting or international listings are involved.
Still, the path to full adoption won’t be uniform. Some industries and regions may move faster than others, depending on regulatory readiness and system maturity.
Looking ahead, IFRS 18 is more than just a technical update—it’s a step toward more insightful and globally aligned financial storytelling. For companies that embrace the change early, it offers a real opportunity to strengthen stakeholder trust and financial communication.