Disaggregating Information for Better Risk Transparency: Applying IFRS 18

As financial reporting evolves, clarity and comparability have become top priorities for investors, regulators, and other stakeholders. One area of growing focus is disaggregation—breaking down aggregated financial data to reflect differences in risk characteristics.

The new IFRS 18 Presentation and Disclosure in Financial Statements, effective January 1, 2027, emphasizes disaggregation as a tool to provide decision-useful information. Recent IASB examples show why grouping items that carry significantly different risks can obscure crucial insights for users of financial statements.

What IFRS 18 Requires

IFRS 18 requires companies to:

• Disaggregate financial information in the notes when items share dissimilar risk characteristics, even if they belong to the same class.

• Use judgment to determine the appropriate level of disaggregation based on materiality and risk exposure.

• Apply consistent principles across reporting periods to ensure comparability.

The objective is to help stakeholders understand how risk affects the financial position and performance of an entity.

IASB Illustrative Example

The IASB’s example involves a company that owns two types of property, plant, and equipment (PP&E):

• High-emission assets: Used extensively but exposed to regulatory and consumer pressure due to climate risk.

• Low-emission assets: Recently acquired, aligned with the company’s transition strategy.

Both types fall under the same PP&E class, but they have vastly different vulnerabilities to climate-related transition risks. Failure to disaggregate:

• Could mislead users about the company’s exposure to regulatory changes and asset impairment risks.

• Might obscure strategic transition investments, reducing the usefulness of financial statements.

By disaggregating PP&E into these two categories, the company provides material information that enhances transparency and decision-making.

Best Practices for Applying Disaggregation

1. Identify Key Risk Characteristics
   Focus on differences in operational exposure, regulatory risk, or technological obsolescence.

2. Use Judgment and Materiality Principles
   Avoid unnecessary complexity; disclose only where differences are material to user decisions.

3. Ensure Consistency Across Periods
   Disaggregation should follow a logical, consistent basis for comparability.

4. Explain the Rationale
   Include notes that clarify why and how items were disaggregated.

Strategic Benefits for Companies

Disaggregation is not just about compliance—it’s a strategic communication tool:

• Builds investor confidence by highlighting how risk is managed across asset classes.

• Supports ESG transparency, particularly in sectors transitioning to low-carbon models.

• Improves comparability with peers, enhancing credibility with regulators and stakeholders.

Disaggregating financial information under IFRS 18 is more than a reporting formality—it is a critical step toward risk-focused transparency. In a climate where investors and regulators demand deeper insight into risk exposure, aggregating dissimilar items can mask vulnerabilities and distort perceptions of financial resilience.

By applying IFRS 18’s principles, companies can:

• Provide clarity on risk concentration and mitigation strategies.

• Align disclosures with strategic objectives, including climate transition plans.

• Strengthen their reputation for transparency and sound governance.

At Dawgen Global, we help organizations:

• Implement IFRS 18’s disaggregation principles effectively.

• Design disclosure frameworks that highlight material risk differences.

• Integrate risk reporting with sustainability and strategic performance metrics.

In an era where information symmetry drives trust, disaggregation isn’t just compliance—it’s a competitive advantage that positions your business for sustainable growth.

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