NZ IFRS 18: Turn mandatory reporting change into a better performance story

Although NZ IFRS 18 primarily changes presentation and disclosure, implementation may have wider implications for management reporting, systems, data, governance, controls and stakeholder communications.

Done well, NZ IFRS 18 is an opportunity to explain performance more clearly and consistently and strengthen the connection between financial reporting, internal reporting and external communications.

NZ IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027 and is applied retrospectively. This means comparative information will need to be restated.

For many New Zealand entities, the period is already underway. Key decisions, data requirements, controls and dry-run reporting therefore need to be addressed before the first affected reporting deadline.

Additional consideration for interim reporters

For entities that prepare interim financial statements, the first affected financial statements will generally be the first interim report in the initial year of application. This brings the first live reporting deadline forward further and introduces additional reconciliation requirements.

In the first year of application, condensed interim financial statements prepared under.

NZ IAS 34 will need to include the headings expected to be used in the annual financial statements and the subtotals required by NZ IFRS 18.

Entities will also need to provide reconciliations for each comparative statement of profit or loss line item between:

• the restated amounts applying NZ IFRS 18; and
• the amounts previously presented applying NZ IAS 1.

For entities that report quarterly, the reconciliation requirements may apply to both the comparative quarter and comparative year-to-date period.

This brings the practical implementation deadline forward. Key decisions, comparative information, systems changes, controls and dry-run reporting need to be addressed before the first affected interim close.

For many New Zealand reporters, the comparative period has begun and the first NZ IFRS 18 reporting deadline is approaching.

Waiting until the first affected reporting process may leave insufficient time to:

• resolve classification and presentation judgements;
• determine whether the entity has specified main business activities that affect classification;
• identify management-defined performance measures;
• assess operating expense presentation and disclosure;
• remap and restate comparative information;
• prepare the required comparative reconciliations;
• update consolidation and financial reporting systems;
• establish supporting controls and audit evidence;
• complete a dry run of the restated comparative information and, where relevant, interim financial statements;
• align with auditors; and
• prepare boards, audit committees, investors and other stakeholders for the changes.

Early action allows organisations to test the new reporting structure before the first affected reporting deadline and avoid implementation under compressed reporting timelines.

NZ IFRS 18 introduces significant changes in three main areas:

1. the structure of the statement of profit or loss;
2. management-defined performance measures; and
3. aggregation and disaggregation.

It also introduces specific requirements for the presentation and disclosure of operating expenses.

Statement of profit or loss

Income and expenses will be classified into:

• operating;
• investing;
• financing;
• income taxes; and
• discontinued operations.

The operating category acts as the default category and includes income and expenses that are not classified in the other categories.

The classification analysis may be more complex for entities that invest in assets or provide financing to customers as a main business activity.

NZ IFRS 18 also introduces defined subtotals, including:

• operating profit or loss; and
• profit or loss before financing and income taxes, subject to specific requirements applying to some entities.

These changes may affect how financial performance is presented, analysed and explained.

Management-defined performance measures

Some subtotals of income and expenses used in public communications may meet the definition of a management-defined performance measure.

A management-defined performance measure is a subtotal that:

• is a subtotal of income and expenses;
• is used in public communications outside the financial statements;
• communicates management’s view of an aspect of the financial performance of the entity as a whole; and
• is not a subtotal specified by NZ IFRS.

Not every KPI or alternative performance measure will be a management-defined performance measure. Each measure will need to be assessed against the definition.

Where the disclosure requirements apply, management-defined performance measures will need to be included in a single financial statement note. The disclosures include:

• what the measure communicates;
• why management believes it provides useful information;
• how it is calculated;
• a reconciliation to the most directly comparable NZ IFRS total or subtotal; and
• the income tax and non-controlling interest effects of reconciling items.

Changes to a measure, including adding, changing or ceasing to use it, may also require explanation and restated comparative information.

Aggregation and disaggregation

NZ IFRS 18 introduces stronger principles for grouping information in the primary financial statements and disaggregating material information in the notes.

Entities will need to assess whether:

• items have sufficiently similar characteristics to be aggregated;
• material information is obscured by grouping dissimilar items;
• additional line items or note disclosures are required; and
• labels such as “other” provide a sufficiently clear and faithful description.

This may require changes to account mapping, disclosure processes and the level of information captured through financial reporting systems.

Operating expenses

Entities will need to determine whether presenting operating expenses by nature, by function or using a mixed presentation provides the most useful structured summary.

Where operating expenses are presented using functions such as cost of sales, administration or distribution, additional disclosures about specified expenses by nature will be required.

This could create new data, mapping and control requirements, particularly where information is not currently captured at the required level.

The implications may extend beyond the face of the financial statements.

Financial reporting

Current financial statements will need to be reassessed against the new classification, subtotal, operating expense and disaggregation requirements.

Comparative information will need to be restated. For entities preparing interim financial statements, this also includes comparative information presented in the first affected interim report.

Management reporting and performance measures

Organisations will need to consider whether the way performance is reported internally remains aligned with external financial reporting.

Measures presented in investor materials, results announcements, presentations and other public communications will need to be inventoried and assessed to determine whether they meet the management-defined performance measure definition.

Systems and data

Changes may be required to:

• the chart of accounts;
• consolidation and reporting tools;
• data mapping;
• disclosure management processes;
• board and management reporting packs; and
• financial statement production tools.

The impact will depend on the existing level of reporting detail and whether the information needed for comparative restatement and expense disclosures is readily available.

Governance and controls

Key judgements will need to be documented, reviewed and approved. Organisations may need new or updated controls over:

• classification of income and expenses;
• management-defined performance measures;
• operating expense disclosures;
• aggregation and disaggregation;
• comparative restatement;
• public communications; and
• consistency between financial statements and other reporting.

Audit readiness

Management will need clear documentation supporting the judgements, data, reconciliations and disclosures used in the first affected financial statements, including interim reports where applicable.

Early engagement can help identify areas requiring further analysis and reduce late-stage challenge during the first reporting cycle.

Stakeholder communications

Boards, audit committees, investors, lenders and internal management may need a clear explanation of:

• what is changing;
• why reported line items or subtotals look different;
• whether previously reported performance measures are affected;
• whether the changes alter reported profit or primarily affect presentation; and
• how the organisation’s performance story will be communicated consistently.

Where financial statement measures are referenced in lending arrangements, remuneration arrangements or other agreements, organisations should also assess whether changes in presentation affect related definitions, reporting or communications.

Implementation should begin with the first affected reporting date and work backwards.

How PwC can help

PwC can support your NZ IFRS 18 preparation through a practical, staged approach.

We help organisations:

• assess the financial reporting impact;
• confirm the first affected reporting date and comparative period, including interim dates where relevant;
• identify and resolve key judgements;
• prioritise implementation effort;
• develop an implementation roadmap;
• assess management-defined performance measures;
• evaluate systems, data, processes and controls;
• prepare comparative information;
• engage boards and audit committees;
• complete dry-run reporting; and
• align financial reporting with investor and stakeholder communications.

Where NZ IFRS 18 has broader implications, we can also help assess the impact on reporting packs, disclosure processes, data requirements, governance, controls, covenants, remuneration metrics and implementation planning.

Human-led. AI-enabled. Focused on better reporting outcomes.

Our specialist-led, AI-enabled approach combines NZ IFRS 18 accounting expertise, sector insight and PwC methodology.

Where appropriate, AI-enabled diagnostics can help analyse complex reporting information, identify potential impact areas, support the inventory of management-defined performance measures, highlight disclosure gaps and focus specialist attention on the areas that matter most.

AI does not replace PwC judgement, accountability or quality review.

PwC specialists interpret the analysis, challenge the implications and help management develop practical, supportable and auditable reporting outcomes.