Response 3 - W.Henzell

Call for comments on Draft Endorsement Criteria Assessment of IFRS 18 Presentation and Disclosure in Financial Statements

Deadline for completion of this Invitation to Comment:

Close of business, 7 October 2025

Please submit to: [email protected]

Introduction

The objective of this Invitation to Comment is to obtain input from stakeholders on the endorsement and adoption of IFRS 18 Presentation and Disclosure in Financial Statements, published by the International Accounting Standards Board (IASB) in April 2024. IFRS 18 replaced IAS 1 Presentation of Financial Statements. IFRS 18 sets out general presentation and disclosure requirements that apply across the primary financial statements and the notes. It has an effective date of 1 January 2027 with earlier application permitted (subject to the UKEB adoption in the UK). The information collected from this Invitation to Comment is intended to help with the endorsement assessment.

UK endorsement and adoption process

The requirements for UK adoption are set out in Statutory Instrument 2019/685¹.

The powers to formally adopt international accounting standards for use in the UK were delegated to the UK Endorsement Board in May 2021².

Who should respond to this Invitation to Comment?

Stakeholders with an interest in the quality of accounts prepared in accordance with IFRS Accounting Standards.

How to respond to this Invitation to Comment

Please download this document, answer any questions on which you would like to provide views, and return it to [email protected] by close of business on 7 October 2025.

Brief responses to individual questions are welcome, as well as comprehensive responses to all questions.

Privacy and other policies

The data collected through submitting this document will be stored and processed by the UKEB. By submitting this document, you consent to the UKEB processing your data for the purposes of influencing the development of and adopting IFRS Accounting Standards for use in the UK. For further information, please see our Privacy Statements and Notices and other Policies (e.g. Consultation Responses Policy and Data Protection Policy)³.

The UKEB's policy is to publish on its website all responses to formal consultations issued by the UKEB unless the respondent explicitly requests otherwise. A standard confidentiality statement in an e-mail message will not be regarded as a request for non-disclosure. If you do not wish your signature to be published, please provide the UKEB with an unsigned version of your submission. The UKEB prefers to publish responses that do not include a personal signature. Other than the name of the organisation/individual responding, information contained in the “Your Details” document will not be published. The UKEB does not edit personal information (such as telephone numbers, postal or e-mail addresses) from any other response document submitted; therefore, only information that you wish to be published should be submitted in such responses.

Assessment against endorsement criteria

Our draft assessment [tentatively] concludes that:

• IFRS 18 meets the criteria of relevance, reliability, understandability and comparability required of the financial information needed for making economic decisions and assessing the stewardship of management, as required by SI 2019/685 (see Regulation 7(1)(c));
• application of IFRS 18 is not contrary to the principle that an entity's accounts must give a true and fair view as required by SI 2019/685 (see Regulation 7(1)(a)); and
• that IFRS 18 is likely to be conducive to the long term public good in the UK as required by SI 2019/685 (see Regulation 7(1)(b)), having considered:
  • whether they will generally improve the quality of financial reporting;
  • the costs and benefits that are likely to result from their use; and
  • whether they are likely to have an adverse effect on the economy of the UK, including on economic growth.

Our draft assessment also concludes that IFRS 18 is not likely to lead to a significant change in accounting practice and therefore does not meet the criteria for a post-implementation review under Regulation 11 in SI 2019/685.

Our assessment is set out in Sections 3–6 of the [Draft] ECA.

Questions

Technical accounting criteria assessment

1. Do you agree with the draft assessment of IFRS 18 against the technical accounting criteria? (please select one option)

2. Please include any comments you may have in response to question 1:

UK long term public good assessment

3. Do you agree with the initial overall assessment of the costs likely to arise from the implementation of IFRS 18? (please select one option).

4. Please include any comments you may have in response to question 3 including, if applicable, any costs that may have been omitted from the analysis:

Disclaimer: I have used ChatGPT to draft my response to this.

While the UKEB's Draft ECA concludes that implementation and ongoing costs of IFRS 18 are relatively modest for listed entities, this assessment is incomplete and potentially misleading, because it does not explicitly consider the impact on the ~14,000 unlisted UK entities that have elected (or are required by group policy) to use UK-adopted international accounting standards.

1. Disproportionate burden on smaller companies

• Unlike large listed groups, smaller unlisted entities often lack the scale, specialist teams, and sophisticated systems to absorb new reporting requirements.
• Costs such as system reconfiguration, auditor discussions, staff training, and template redesign are far less scalable, meaning unit costs per £ of revenue or operating cost are materially higher for these companies.
• What is "negligible (<1%)” for a FTSE-listed group can be a significant recurring burden for a mid-sized private company with lean finance resources.

2. UKEB survey sample bias

• The UKEB's cost estimates are heavily informed by responses from listed and large public interest entities, which naturally have greater capacity.
• The omission of smaller unlisted entities from explicit consideration introduces a downward bias in the assessment of both one-off implementation and ongoing compliance costs.

3. Aggregate impact underestimated

• Even if unlisted companies face lower absolute £ costs, the aggregate cost across ~14,000 companies is significant.
• Using the UKEB's own median one-off cost estimate of ~£100k, the unconsidered burden could approach £1.4bn at implementation, with annual ongoing costs in the hundreds of millions.
• This is multiples of the ~£400m cited for listed companies, demonstrating a potential systemic cost that is materially understated.

4. Strategic flexibility constraints

• Smaller unlisted groups often choose IFRS voluntarily for alignment with global parents or capital raising ambitions.
• IFRS 18 may force them to weigh the cost of continued IFRS adoption against reverting to UK GAAP (FRS 102), introducing uncertainty and potential fragmentation in reporting frameworks – itself a cost to users of accounts.

For these entities, IFRS 18 compliance will represent a material increase in cost and complexity, creating disproportionate burdens and raising questions as to whether the benefits to users outweigh the costs to preparers.

Why not mandate that the need to disclose under IFRS 18 is necessary for listed companies only? Or allow for an exemption for companies not in a regulated sector?

5. Do you agree with the initial overall assessment of the benefits likely to arise from the implementation of IFRS 18? (please select one option).

6. Please include any comments you may have in response to question 5 including, if applicable, any benefits that may have been omitted from the analysis:

Disclaimer: I have used ChatGPT to draft my response to this.

The benefits have only been considered from the viewpoint of the small number of firms and investors that have encouraged the change.

The Draft ECA asserts that IFRS 18 will provide wide-ranging benefits (greater comparability, consistency, transparency, lower cost of capital). While these benefits may be relevant for large, listed groups, they do not apply to the majority of IFRS preparers in the UK – namely the ~14,000 unlisted entities that have adopted IFRS for group or investor alignment reasons.

1. Transparency & Comparability

• Draft claim: IFRS 18 improves cross-company and sector comparability, especially in income statement structure.
• Reality for unlisted entities:
  • These companies are not subject to equity market scrutiny or analyst comparisons.
  • External user groups are usually limited to lenders, tax authorities, and group parents, who often demand bespoke internal reporting anyway.
  • The comparability benefit is therefore irrelevant or immaterial for these preparers.

2. Management Performance Measures (MPMs)

• Draft claim: More reliable, reconciled, and transparent MPMs benefit investors and analysts.
• Reality for unlisted entities:
  • Smaller IFRS preparers rarely publish MPMs externally.
  • MPMs are primarily group-directed or internal, not a key feature of statutory accounts.
  • The requirement to disclose, reconcile, and explain them represents pure additional compliance burden, with no end-user benefit.

3. Efficiency of User Analysis

• Draft claim: Users save time analysing accounts due to standardised categories.
• Reality for unlisted entities:
  • For most private companies, there are few external analysts or “users” making comparisons across peer groups.
  • Primary readers are auditors, directors, and possibly lenders, who already receive tailored reporting (management packs, covenant schedules).
  • No efficiency gains materialise for these stakeholders.

4. Cost of Capital Reduction

• Draft claim: Improved reporting reduces cost of equity/debt capital through higher investor confidence.
• Reality for unlisted entities:
  • These companies are not raising public equity and often rely on intragroup funding or standard bank debt facilities.
  • Bank lending decisions are rarely influenced by IFRS subtotals, but rather by EBITDA, cash flow, and security.
  • As such, the "lower cost of capital” argument is theoretical and not applicable to this segment.

5. Long-term Public Good

• Draft claim: Better reporting supports efficient capital allocation.
• Reality for unlisted entities:
  • With no public market trading, these companies do not influence broad capital allocation decisions.
  • The societal/public good case rests on listed capital markets, not private companies.

Conclusion

The UKEB's benefits assessment for IFRS 18 is heavily market-facing and relevant to a minority (listed companies). For the majority of UK IFRS preparers — unlisted, private entities — the benefits are theoretical at best, and in practice non-existent.

What remains for these companies is disproportionate cost without corresponding user benefit, making the case for endorsement incomplete and overstated.

7. Do you agree with the draft assessment that IFRS 18 is likely to be conducive to the long term public good in the UK? (please select one option)

8. Please include any comments you may have in response to question 7 including, if applicable, any economic effects that have been omitted from the analysis:

The Draft suggests IFRS 18 will be conducive to the long-term public good, in reality no incremental benefit is created for the UK economy.

The standard does not generate new value; it simply requires the same pieces of financial information to be rearranged in a more prescriptive way.

This exercise delivers no genuine improvement in business performance, growth, or productivity.

Instead, it imposes additional costs on hard-working unlisted UK private companies, while the only clear winners are the consultants and advisors engaged to implement and interpret yet another layer of reporting complexity.

The outcome is therefore not the creation of public good, but a redistribution of resources away from enterprise and into the pockets of consultants to cover increased compliance overhead.

9. In our assessment of implementation costs we have concluded that implementing IFRS 18 will not be disproportionately costly for listed small- and medium-cap entities. Do you agree with this assessment? (please select one option).

10. Please include any comments you may have in response to question 9:

My response is detailed in Q6

True and fair view assessment

11. Do you agree with the draft assessment that IFRS 18 is not contrary to the true and fair view requirement? (please select one option)

12. Please include any comments you may have in response to question 7:

Is IFRS 18 likely to lead to a significant change in accounting practice?

13. The UKEB's tentative view is that IFRS 18 is not likely to lead to a significant change in accounting practice because:

1. Approximately 80% of the requirements in IAS 1 have been carried forward into IFRS 18 (or into IAS 8 Changes in Accounting Policies, Estimates and Errors or IFRS 7 Financial Instruments: Disclosures) with limited or no changes. Likewise, a few of the new requirements in IFRS 18 are based on previous requirements in IAS 1.
2. It does not include requirements on how entities recognise and measure items in the financial statements.
3. Current financial reporting practices in the UK may already align with certain aspects of the new requirements in IFRS 18. Therefore, implementing IFRS 18 is unlikely to result in a fundamental change to existing accounting practices.

14. The UKEB observes, however, that there are arguments supporting that IFRS 18 is likely to lead to a significant change in accounting practice, notably that:

1. IFRS 18 introduces new requirements that extend beyond the scope of IAS 1 that are expected to affect most if not all entities, such as:
   1. A new structure and newly defined subtotals, including operating profit in the statement of profit or loss, that may affect how entities present and communicate financial performance.
   2. Mandatory disclosure of management defined performance measures (MPMs) in a single note. In practice there may not be much change considering that most entities already provide detailed reconciliations of their alternative performance measures (APMs). However, entities will need to reassess and potentially expand the information they disclose publicly.
   3. New guidance on aggregation and disaggregation, which may require entities to revisit how they group, disaggregate information across the financial statements.
2. IFRS 18 is more than a standard on presentation and disclosure. It represents a long-awaited response to user demands for more relevant, transparent and comparable information. Users have widely acknowledged that IFRS 18 will significantly impact and reshape the presentation and disaggregation of information (primarily on the statement of profit or loss).

15. Taking into consideration the arguments presented above, do you agree with the tentative assessment in the [Draft] ECA that IFRS 18 is not likely to lead to a significant change in accounting practice? (please select one option):

16. Please provide your rationale for the answer to Question 15—namely, the reasons for concluding whether or not IFRS 18 is likely to lead to a significant change in accounting practice:

The Draft ECA is heavily biased towards the circumstances of large listed companies and fails to properly consider the position of the approximately 14,000 unlisted UK entities that apply IFRS voluntarily. These businesses represent the majority of UK IFRS preparers, yet their perspectives, resource constraints, and reporting needs are absent from the analysis. By focusing almost exclusively on capital market benefits, the Draft overlooks the disproportionate costs and operational burdens borne by private companies, where there are few genuine users of the additional information.

This imbalance risks having the opposite effect to what the Draft intends. Faced with rising complexity and compliance costs without corresponding benefit, many private firms will rationally consider reverting to FRS 102. Such a shift would negate the supposed comparability and transparency benefits of IFRS 18, leading to fragmentation rather than alignment in UK financial reporting. Far from being conducive to the long-term public good, the current proposal risks alienating a significant proportion of IFRS preparers and undermining the stability of the UK reporting framework.

17. Do you have any other comments you would like to add?

The introduction of IFRS 18 represents yet another cost pressure on already stretched UK companies, many of which are contending with rising taxes, inflationary headwinds, and increasing regulatory obligations.

For unlisted companies, where the benefits of IFRS 18 are minimal to non-existent, the imposition of further reporting complexity risks diverting resources away from investment and growth. A more balanced and proportionate approach would be to grant non-listed companies an exemption from IFRS 18 or make its adoption voluntary, ensuring that only those entities genuinely benefitting from the enhanced disclosures bear the cost of compliance.

Thank you for completing this Invitation to Comment

Please submit this document by close of business on 7 October 2025 to: [email protected]

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