On 9 April 2024, IFRS 18 was issued by the International Accounting Standards Board (IASB). As announced by the IASB, the effective implementation date applies to annual periods beginning on or after 1 January 2027, which means that entities reporting under IFRS will be required to apply IFRS 18 from the 2027 financial year onwards. Early adoption is, however, permitted should IFRS-reporting entities choose to do so.
IFRS 18 replaces IAS 1 and has as its main objective the improvement of the presentation and disclosure of financial statements through greater comparability, transparency and standardisation. To achieve this objective, the standard introduces new requirements that will influence the presentation and disclosure of financial information. These requirements include:
- The requirement to classify all income and expenses into specific categories, as well as to present specific totals and subtotals in the income statement;
- Enhanced guidance on the aggregation, location and classification of items in the financial statements and in the notes;
- Mandatory disclosure of management-defined performance measures (a subset of alternative performance measures).
IFRS 18 also introduces consequential amendments to other standards, including IAS 7 – Statement of Cash Flows, IAS 33 – Earnings per Share, and IAS 34 – Interim Financial Reporting.
Against this backdrop, why does it become so relevant to discuss IFRS 18 in Mozambique? And why address its relevance in advance, if it only becomes effective in 2027?
To answer the first question, it is important to note that in Mozambique, and in accordance with Notice No. 04/GBM/2007 of the central bank, all institutions subject to the supervision of the Bank of Mozambique must prepare their financial statements in compliance with IFRS, as issued by the IASB. In practice, this means that all credit institutions and financial companies in Mozambique will have to apply IFRS 18, and therefore the standard will have a cross-cutting impact on financial reporting in the banking sector.
When the requirements intrinsic to each phase are understood, the remaining timeframe of approximately one year for the implementation of IFRS 18 does not appear as extensive as it might initially be perceived.
With regard to the need to address the importance and requirements of IFRS 18 in advance, this becomes quite clear when analysing a realistic implementation timeline from an operational perspective. To this end, a proposed implementation timeline is presented below, aimed at supporting financial institutions in Mozambique in navigating the requirements underlying this standard and aligned with the timelines defined by the IASB:
Phase 1: initial impact assessment, cross-functional practical sessions, benchmarking and strategic alignment between teams. For entities that are and/or hold subsidiaries or associates, aligning financial statements across group entities, taking into account both local and group requirements, can be particularly complex.
Phase 2: redesign or adaptation of the chart of accounts and its respective mapping to the financial statements. This phase also includes the alignment of workflows and the management of any necessary changes in terms of system reconfigurations and automations inherent to IT systems and financial statement preparation tools. The success of this phase will largely depend on a phased implementation approach, automation, simulations and disclosure checklists. At this stage, it will also be essential to coordinate cross-functional teams that enable the integration of expertise from accounting, finance, IT and operations areas.
Phase 3: “go-live” of the new reporting model. The main expected challenges include systems integration, updates to internal policies and guidelines, and (for group entities) coordination and integrated reporting. At this stage, organisations should implement post-implementation monitoring mechanisms with dedicated review teams, use dashboards for real-time compliance and invest in training and change management.
By understanding the requirements intrinsic to each phase, particularly when associated with the size and complexity of a financial institution’s operations and control environment (many of which are often part of international financial groups), the remaining timeframe of approximately one year for the implementation of IFRS 18 does not appear as extensive as it might initially be perceived. For an effective implementation, it will be essential to ensure alignment of internal systems, training of the teams involved and a review of reporting processes, ensuring compliance with the new presentation and disclosure requirements.
In this process, the ability to anticipate will prove crucial: institutions that prepare in a timely manner will be able to identify challenges, adapt procedures and minimise compliance risks, positioning themselves competitively in an ever-evolving regulatory environment.
Early preparation will allow the necessary investment to be spread over different financial years and will facilitate the restatement of comparative data (i.e., 2026), as required by the standard, without the need for accelerated processes, which typically involve additional costs.
At EY Mozambique, we encourage financial institutions to view IFRS 18 not merely as an obligation, but as an opportunity to raise standards of governance and financial management. As a firm, we hope to position ourselves as partners to sector stakeholders in this transition to a new era of reporting in the Mozambican banking sector.
