TFRS 18: Presentation and Disclosure in Financial Statements which will be effective for an accounting period beginning on or after January 1, 2028. TFRS 18 will replace TAS1: Presentation of Financial Statements. These changes affect all businesses that use TFRS because this standard relates to: the presentation and disclosure of financial statements, which are the main points that an enterprise must consider in order to properly present financial statements and disclose information. These changes require auditors to understand the principles of TFRS 18 in order to assess the appropriateness of the presentation and disclosure of financial statements in accordance with the financial reporting standards.
What is TFRS 18? A Short summary:
Source: Created from AI
TFRS 18 emphasizes “Presentation” and “Disclosure” in the financial statements
🎯 The main goals are:
• To simplify the understanding of financial statements by reclassifying the income statement into clearer categories; operating, investing, financing, and income taxes aligning with the statement of cash flow and presenting subtotals more clearly.
• To increase transparency by providing an income statement structure that reflects the nature of the business and clearly separating operating activities from investing and financing activities. Furthermore, it requires entities to disclose management-defined performance measures (MPMs).
• To improve comparability between entities due to the clearer structure of the income and cash flow statements.
Auditors should understand this standard and adjust their audit approaches in several areas, including audit planning, classification, examination of the statement of profit or loss, and disclosure. More professional judgment is required in considering the classification of items and various disclosures. In summary, the auditor’s verification process can be applied as a preliminary guideline as follows:
Audit Checklist: TFRS 18 Key areas for auditors to focus on:
- Planning & Risk Assessment
Auditors should begin by understanding the new financial statement structure and assessing significant risks. Identify accounts/items requiring high judgment, particularly risks related to “misclassification” and “inappropriate management judgment.”
Action Plan:
- Update Audit Program: Add steps to audit the new classification of items.
- Engagement Team Discussion: Hold a team meeting to assess which elements of the financial statements are most prone to errors for this client.
- Classification
Assess the risk of a business “manipulating” its operating profit to appear better. Verify that the business appropriately classifies income and expenses under operating, investing, or financing categories. Consider consistency and justification for the classification, ensuring a “consistency and reasonableness” compare with the prior year, the reasons for any changes have been disclosed.
🔍 Focus:
- Verify the accuracy of classifications.
- Beware of “manipulation to enhance profits,” such as including extraordinary items outside of core business in operating profit (e.g., gains from asset/investment sales, foreign exchange gains).
- Structure of Income Statement (Presentation)
Verify significant subtotals such as operating profit, profit before financing and income taxes, and profit before tax to ensure that no misclassified items are included to distort operating profit results.🔍 Focus:
• Verify the correct calculation of subtotals.
• Avoid misclassifying items to “manipulate profits.” - Management-defined Performance Measures (MPMs)
Evaluate management-defined Performance Measures, such as EBITDA or Adjusted Profit, ensuring reconciliation with standard figures and transparent disclosure. The calculation methodology must be “consistent,” avoiding selective adjustments for improved results, and clear disclosure is required.🔍 Focus:
• Verify the accuracy of the reconciliation between management’s MPMs and financial statement figures.
• Assess whether “adjustments are excessive,” as the standard doesn’t specify a fixed metric but requires the company to clearly explain which items were adjusted and the reasons for the adjustments to demonstrate the true impact.
• Management Representation Letter include a statement from the management confirming the appropriateness and disclosure of MPMs. - Disclosure
Verify the completeness of disclosed information, including accounting policies, rationale for classification, and details of MPMs to prevent miscommunication that may mislead financial statement users. This also includes adjusting comparative financial statements retrospectively to align with the new structure. - Judgment & Estimates
Auditors should consider the reasonableness of their judgment and beware of management bias, using professional skepticism to assess whether there is sufficient supporting documentation. - Testing & Analytical Procedures
Conduct tests on significant items, compare current and previous period’s figures, analyze margins and trends, and examine for anomalies in figures, classifications, and new subtotals. - Conclusion
Summary of the planned audit results, covering:
• The presentation of the financial statements complies with TFRS 18.
• Items are correctly ordered
• No “leading” presentation to financial statement users
• No material misstatements from:
o Classification
o Presentation
o Disclosure
• Consideration of the impact on the auditor’s professional opinion
💡 Auditor’s Professional Skepticism (points where the auditor should have doubts about the financial statements) - Window Dressing: Does the business attempt to move “operating expenses” to the “Financing” or “Investing” category to make operating profit appear higher? For example, the business may have normal machinery repair expenses (operating expense) but record them as asset improvement expenses (capital expenditure) in the investing category instead. Or, the business may have normal interest or fee expenses from borrowing money for operations (operating expense) but classify the item in a way that is hidden under the financing category.
- MPM Cherry-picking: Does the business selectively disclose only MPMs that look good and conceal worse figures? For example, the business may present adjusted EBITDA by adding back normal actual costs (such as employee or marketing expenses), making profits appear inflated. Or, the business may have extraordinary expenses that negatively impact performance but fail to provide a measure to deduct those expenses, thus concealing the true picture for financial statement users.
- Labeling: Do the names of items in the financial statements accurately reflect their economic content? For example, TFRS 18 focuses on separating items arising from core operating activities from items arising from financial or investment activities.
TFRS 18 is not merely a change in the format of financial statements, but rather an enhancement of the “quality of financial information” to reflect a clearer, more transparent, and comparable picture of the business. From the auditor’s perspective, their role extends beyond simply verifying the accuracy of figures; it must extend to assessing whether the “presentation and disclosure of information” accurately communicates the financial story and does not mislead users of the financial statements. Therefore, the key challenge lies in exercising professional judgment coupled with professional skepticism to ensure that financial statements under TFRS 18 are not only “accurate” but also “reliable and truly reflect economic reality.”
Author: Ms. Nantawadee Kittikawin
Dharmniti Auditing Co., Ltd.
References:
• TFAC Newsletter Issue 118 (April – June 2026) on TFRS 18 and the Classification of Income and Expenses: Financial Statements That Tell the Business Story More Clearly by Ms. Wandee Leeworawat, Director of the Accounting Standards Committee.
• TFRS 18 Presentation and Disclosure in Financial Statements, The Federation of Accounting Professions under the Royal Patronage of His Majesty the King.
