UNDERSTANDING THE NEW CATEGORIES AND SUBTOTALSEntities with a specified main business activity (SMBA)
HKFRS 18 sets out specific classification requirements for entities whosemain business activity is:
investing in particular types of assets; orproviding financing to customers.Examples include banks and insurers. Where applicable, theserequirements may result in different classification outcomes comparedwith other entities. We will explore the assessment of SMBA and thepractical implications in the next issue.Other classification requirementsHKFRS 18 also specifies how to classify:
foreign exchange differences and gain or loss on the net monetaryposition; andgains and losses on derivatives and designated hedging instruments.Key PointsFive categories for classifying income and expenses – operating, investing,financing, income taxes and discontinued operationsTwo new mandatory subtotals – operating profit and profit before financing andincome taxesAdditional classification requirements for entities with specified main businessactivitiesHow should income and expenses be classified under the new categories(operating, investing and financing), and which new subtotals are nowrequired?HKFRS 18 Presentation and Disclosure in Financial Statements introduces a new structure for thestatement of profit or loss. In this issue, we highlight the key changes and their implications forcurrent practices.HKFRS 18 NAVIGATORNAVIGATINGTHE NEW STRUCTUREMARCH 2026 ISSUE 2HKFRS 18 requires entities to classify all income and expenses into defined categories in thestatement of profit or loss. These categories have different meanings from those in thestatement of cash flows and must be assessed independently. In addition, HKFRS 18introduces two mandatory subtotals in the statement of profit or loss.CategoriesExamplesOperating categoryAll income and expenses arising from an entity’soperations, irrespective of whether they arevolatile, non‑recurring or unusualIncome and expenses that are not classified in anyother category (a default category)
RevenueCost of salesSelling expensesGeneral and administrativeexpensesNew mandatory subtotalOperating profit or lossInvesting categoryIncome and expenses from:
investments in associates, joint ventures andunconsolidated subsidiariescash and cash equivalentsother assets that generate a return individually andlargely independently from other resourcesShare of profit of associates andjoint ventures accounted for usingthe equity methodInterest revenue from debtinvestmentsDividends from equity investmentsRental income and fair value gainsor losses from investmentpropertiesNew mandatory subtotalProfit or loss before financing andincome taxesFinancing categoryIncome and expenses from liabilities arising fromtransactions that involve only the raising of financeInterest income and expenses and the effects ofchanges in interest rates from other liabilitiesInterest expenses on bank loans,bonds and mortgagesInterest expenses on lease liabilitiesIncome taxesTax expense or tax income included in thestatement of profit or loss applying HKAS 12Income Taxes and any related foreign exchangedifferencesIncome tax expensesDiscontinued operationsIncome and expenses from discontinuedoperations required by HKFRS 5 Non-currentAssets Held for Sale and Discontinued OperationsLoss from discontinued operationsExisting required totalProfit or lossHKFRS 18 NAVIGATORNAVIGATINGTHE NEW STRUCTUREMARCH 2026 ISSUE 2Illustration of the new categories and subtotalsKEY IMPLICATIONS FOR PREPARERSEntities will need to reassess the structure of their statement of profit or loss and evaluate howcurrent presentation practices may change, including the following areas:
Changes to the structure of the statement of profit or loss may impact entities’ current reportingpractices, internal processes and accounting systems. As noted in HKFRS 18 NavigatorIssue 1, entities should conduct an early impact assessment to determine whether their financialreporting systems can support the new classification structure and produce the requiredcomparative information.Operating profit – assess whether items currently included in a subtotal labelledoperating profit comply with HKFRS 18. For example, income and expenses fromassociates and joint ventures accounted for using the equity method can no longer beincluded.Earnings before interest and tax (EBIT) – assess whether EBIT currently presentedmeets the definition of profit before financing and income taxes under HKFRS 18.Existing subtotals – assess whether other existing subtotals fit within the new structureof the statement of profit or loss.LOOKING AHEAD: WHAT’S NEXT IN OUR SERIESH2
6.A deep-dive into Income,expenses & informationgrouping
7.Beyond the headlines:
Changes to other HKFRSAccounting Standards
8.Navigating IFRS agendadecisions on HKFRS 18
9.From theory to practiceQ2
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsQ1
1.Getting ready
2.Navigating the newstructureHKFRS 18 NAVIGATORNAVIGATINGTHE NEW STRUCTUREMARCH 2026 ISSUE 2In the next issue, we will focus on entities with a SMBA, including how to assess whether anentity has a SMBA and how this affects classification outcomes.This publication has been prepared by staff of HKICPA for information or illustration purposes. Members of theHKICPA and other users should also read the full HKFRS Accounting Standards, as found in the HKICPAMembers’ Handbook for further reference, and seek professional advice where necessary.
HKFRS 18 Navigator Issue 2: Navigating the New Structure
下载原件UNDERSTANDING THE NEW CATEGORIES AND SUBTOTALSEntities with a specified main business activity (SMBA)
HKFRS 18 sets out specific classification requirements for entities whosemain business activity is:
investing in particular types of assets; orproviding financing to customers.Examples include banks and insurers. Where applicable, theserequirements may result in different classification outcomes comparedwith other entities. We will explore the assessment of SMBA and thepractical implications in the next issue.Other classification requirementsHKFRS 18 also specifies how to classify:
foreign exchange differences and gain or loss on the net monetaryposition; andgains and losses on derivatives and designated hedging instruments.Key PointsFive categories for classifying income and expenses – operating, investing,financing, income taxes and discontinued operationsTwo new mandatory subtotals – operating profit and profit before financing andincome taxesAdditional classification requirements for entities with specified main businessactivitiesHow should income and expenses be classified under the new categories(operating, investing and financing), and which new subtotals are nowrequired?HKFRS 18 Presentation and Disclosure in Financial Statements introduces a new structure for thestatement of profit or loss. In this issue, we highlight the key changes and their implications forcurrent practices.HKFRS 18 NAVIGATORNAVIGATINGTHE NEW STRUCTUREMARCH 2026 ISSUE 2HKFRS 18 requires entities to classify all income and expenses into defined categories in thestatement of profit or loss. These categories have different meanings from those in thestatement of cash flows and must be assessed independently. In addition, HKFRS 18introduces two mandatory subtotals in the statement of profit or loss.CategoriesExamplesOperating categoryAll income and expenses arising from an entity’soperations, irrespective of whether they arevolatile, non‑recurring or unusualIncome and expenses that are not classified in anyother category (a default category)
RevenueCost of salesSelling expensesGeneral and administrativeexpensesNew mandatory subtotalOperating profit or lossInvesting categoryIncome and expenses from:
investments in associates, joint ventures andunconsolidated subsidiariescash and cash equivalentsother assets that generate a return individually andlargely independently from other resourcesShare of profit of associates andjoint ventures accounted for usingthe equity methodInterest revenue from debtinvestmentsDividends from equity investmentsRental income and fair value gainsor losses from investmentpropertiesNew mandatory subtotalProfit or loss before financing andincome taxesFinancing categoryIncome and expenses from liabilities arising fromtransactions that involve only the raising of financeInterest income and expenses and the effects ofchanges in interest rates from other liabilitiesInterest expenses on bank loans,bonds and mortgagesInterest expenses on lease liabilitiesIncome taxesTax expense or tax income included in thestatement of profit or loss applying HKAS 12Income Taxes and any related foreign exchangedifferencesIncome tax expensesDiscontinued operationsIncome and expenses from discontinuedoperations required by HKFRS 5 Non-currentAssets Held for Sale and Discontinued OperationsLoss from discontinued operationsExisting required totalProfit or lossHKFRS 18 NAVIGATORNAVIGATINGTHE NEW STRUCTUREMARCH 2026 ISSUE 2Illustration of the new categories and subtotalsKEY IMPLICATIONS FOR PREPARERSEntities will need to reassess the structure of their statement of profit or loss and evaluate howcurrent presentation practices may change, including the following areas:
Changes to the structure of the statement of profit or loss may impact entities’ current reportingpractices, internal processes and accounting systems. As noted in HKFRS 18 NavigatorIssue 1, entities should conduct an early impact assessment to determine whether their financialreporting systems can support the new classification structure and produce the requiredcomparative information.Operating profit – assess whether items currently included in a subtotal labelledoperating profit comply with HKFRS 18. For example, income and expenses fromassociates and joint ventures accounted for using the equity method can no longer beincluded.Earnings before interest and tax (EBIT) – assess whether EBIT currently presentedmeets the definition of profit before financing and income taxes under HKFRS 18.Existing subtotals – assess whether other existing subtotals fit within the new structureof the statement of profit or loss.LOOKING AHEAD: WHAT’S NEXT IN OUR SERIESH2
6.A deep-dive into Income,expenses & informationgrouping
7.Beyond the headlines:
Changes to other HKFRSAccounting Standards
8.Navigating IFRS agendadecisions on HKFRS 18
9.From theory to practiceQ2
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsQ1
1.Getting ready
2.Navigating the newstructureHKFRS 18 NAVIGATORNAVIGATINGTHE NEW STRUCTUREMARCH 2026 ISSUE 2In the next issue, we will focus on entities with a SMBA, including how to assess whether anentity has a SMBA and how this affects classification outcomes.This publication has been prepared by staff of HKICPA for information or illustration purposes. Members of theHKICPA and other users should also read the full HKFRS Accounting Standards, as found in the HKICPAMembers’ Handbook for further reference, and seek professional advice where necessary.