Dawgen Decodes: Enhanced Aggregation and Disaggregation – The IFRS 18 Approach to Clarity

With the release of IFRS 18 – Presentation and Disclosure in Financial Statements, the International Accounting Standards Board (IASB) has launched a new era of structured, transparent, and comparable financial reporting. One of the most significant shifts under the new standard is the redefinition of how information is aggregated and disaggregated within financial statements and accompanying notes.

For users of financial information—whether investors, analysts, or regulators—this change aims to enhance the clarity, granularity, and usefulness of reported figures. In this edition of Dawgen Decodes, we dive into the disaggregation rules introduced by IFRS 18, explain how they impact statement presentation and narrative reporting, and explore why they matter to both preparers and users of financial statements.

🔍 The Importance of Disaggregation in Financial Reporting

Historically, companies have had significant discretion in how they group and present financial information. While this flexibility enabled some tailoring, it also led to inconsistencies, oversimplification, and the frequent overuse of broad categories like “Other expenses.”

Disaggregation in IFRS 18 directly responds to investor demands for more informative and consistent disclosures. The objective is simple: provide enough detail to understand the nature, amount, and timing of income and expenses—without overwhelming the reader with immaterial or redundant data.

📑 IFRS 18 Disaggregation Requirements

IFRS 18 lays down specific principles for determining whether and how information should be:

• Aggregated and presented in the primary financial statements, or

• Disaggregated and disclosed in the notes to the financial statements.

Key Rules:

• Disaggregated information must be material and decision-useful.

• Disaggregation should reflect the nature and function of items.

• Items cannot be grouped into categories such as “Other” unless individually immaterial and homogeneous in nature.

• There is a presumption of disaggregation for specified income and expense items like depreciation, amortization, employee benefits, impairments, and restructuring costs.

This standard discourages over-aggregation and encourages entities to tell a more complete and comprehensible story about their performance and financial position.

⚙️ Clarifying the Use of “Other” Categories

The use of “Other income” or “Other expenses” has often served as a catch-all, making it difficult for stakeholders to assess key performance drivers. Under IFRS 18:

• Entities are now required to justify the use of “Other” categories.

• Detailed disclosure is expected for any “Other” item that is material individually or by nature.

• If an “Other” category is retained, the notes must explain what is included and why aggregation is appropriate.

This change ensures that “Other” is no longer a dumping ground for diverse, significant, or volatile items—enhancing transparency and comparability.

🧾 Presentation of Operating Expenses: By Nature, Function, or Mixed

One of the most dynamic areas of change is how companies present operating expenses in the statement of profit or loss. IFRS 18 allows for three approaches:

1. By Nature

Expenses are grouped by their type, such as:

• Employee benefits

• Depreciation and amortization

• Raw materials consumed

🔹 This is often used by smaller entities or companies with limited vertical integration.

2. By Function

Expenses are grouped based on their purpose, such as:

• Cost of goods sold

• Selling and distribution expenses

• Administrative expenses

🔹 This method provides insights into cost drivers and aligns with traditional income statement formats.

3. Mixed Presentation

Entities may combine both approaches, but IFRS 18 mandates additional disclosures if a mixed method is used. In particular:

• Disclosure of expenses by nature (e.g., salaries, depreciation) must still be made in the notes.

• The goal is to ensure that no information is obscured or lost due to blended presentation.

📊 Strategic Implications for Financial Statement Preparers

• Finance teams must reassess chart of accounts and ERP mapping to accommodate the new levels of disaggregation.

• Narrative reporting in management discussions must align with the newly disaggregated figures.

• Internal controls and audit readiness processes will need to address data integrity at a more granular level.

• Companies may need to educate stakeholders—especially boards and analysts—on how to interpret the new disclosures.

🌎 Why This Matters to the Caribbean and Emerging Markets

Many companies in the Caribbean follow IFRS or IFRS-converged standards (such as IFRS for SMEs or Ind AS). IFRS 18 will:

• Elevate the quality and usability of financial reporting

• Improve comparability across domestic and international entities

• Attract global investors seeking consistent and transparent reporting

• Encourage governance excellence in both public and private sectors

🧭 Dawgen Global’s Expertise

At Dawgen Global, we assist companies to:

• Review and redesign statement presentation frameworks

• Build data hierarchies and mapping logic for disaggregation

• Develop training programs for finance professionals and audit committees

• Draft clear and compliant disclosures for high-impact items

Our approach ensures that compliance with IFRS 18 becomes an opportunity to enhance the clarity, credibility, and communicative value of your financial statements.

💬 Final Thoughts

The IFRS 18 disaggregation and aggregation principles are not just about formatting—they’re about enabling stakeholders to truly understand a company’s story. By moving beyond broad, ambiguous categories and embracing structured detail, organizations can drive greater trust, transparency, and comparability in financial reporting.

At Dawgen Global, we see this as a strategic inflection point—one that separates companies that simply report from those that truly communicate.

Let us help you bring clarity to your numbers—and confidence to your stakeholders.

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