PRINCIPLES OF AGGREGATION AND DISAGGREGATIONPRESENTING OPERATING EXPENSESnaturefunctionpersistencemeasurement basissizegeographical locationOne of the key objectives of HKFRS 18 is to ensure that material information is communicatedclearly and is not obscured by the way information is presented or disclosed. To achieve thisobjective, an entity is required to:
aggregate items with similar characteristics and disaggregate items with dissimilarcharacteristics;
group items in a way that does not obscure material information; andgroup items in the primary financial statements and the notes to fulfil their complementaryroles.When determining whether items should be aggregated or disaggregated, an entity considerscharacteristics, such as:
In this issue, we focus on HKFRS 18’s enhanced requirements for grouping and presentinginformation in financial statements, including the principles of aggregation and disaggregation, thepresentation of operating expenses and the classification requirements for specific income andexpenses.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6HKFRS 18 requires line items, subtotals and note disclosures to be labelled and described in away that faithfully represents their characteristics and helps users understand them. In particular,an entity should:
Use specific and informative descriptions, with generic labels such as "other" used onlywhen no more specific description is appropriate; andProvide further information about large, aggregated amounts where users mightquestion whether they include material items.DESCRIPTION OF ITEMSHKFRS 18 requires expenses in the operating category to be presented using one or both ofthe following characteristics:
By natureBy functionBased on the nature of the economicresources consumed to accomplish theentity’s activities.Examples include depreciation,amortisation, employee benefits and rawmaterials.Based on the activity to which theconsumed resource relates.Examples include cost of sales, sellingexpenses, research and developmentexpenses and administrative expenses.Important pointManagement should apply judgement in determining which presentation methodprovides the most useful structured summary of the entity’s operating expenses.The presentation method is not an accounting policy choice.depreciationamortisationemployee benefitsimpairment losses and reversals ofimpairment losseswrite-downs and reversals of write-downs ofinventoriesImportant pointThe amounts disclosed are not necessarily the same as the amounts recognisedas expenses during the period. For example, depreciation or employee benefitcosts capitalised as part of the carrying amount of an asset may also be includedin the disclosed amounts.Illustrative exampleNote 1 of HKFRS 18 IE 7 illustrates the additional disclosures required whenexpenses are presented by function.ADDITIONAL DISCLOSURES WHEN EXPENSES ARE PRESENTEDBY FUNCTIONIn determining how to present operating expenses, an entity should consider:
what line items provide the most useful information about the main components or drivers ofthe entity’s profitability;
what line items most closely represent how the business is managed and how managementreports internally;
standard industry practice; andwhether the allocation of particular expenses to functions would be arbitrary.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6DETERMINING THE PRESENTATION OF OPERATING EXPENSESWhere operating expenses are presented by function, HKFRS 18 requires an entity to disclose, ina single note, the total amount of each of the following specified expenses:
For each of the above expenses, an entity is also required to disclose:
the amount related to each line item in the operating category; anda list of any line items outside the operating category that also include amounts relating tothe total.GAINS AND LOSSES ON DERIVATIVES AND DESIGNATED HEDGINGINSTRUMENTSFOREIGN EXCHANGE DIFFERENCESCLASSIFICATION REQUIREMENTS FOR SPECIFIC INCOME AND EXPENSESType of financialinstrumentClassification of related income and expensesFinancial instrumentdesignated as a hedginginstrument applyingHKFRS 9Same category as the income and expenses affected by the risk the financialinstrument is used to manage;
Operating category if doing so would result in grossing up of gains and losses.Derivative not designatedas a hedging instrument,but used to manageidentified risksSame category as the income and expenses affected by the risk the financialinstrument is used to manage;
Operating category if doing so would result in grossing up of gains and losses orinvolve undue cost or effort.Derivative not used tomanage identified risksDoes the derivative relate to a transaction that involves only the raising offinance?No: operating category.Yes:
If the entity has a specified main business activity (SMBA) of providing financingto customers and the derivative relates to providing financing to customers:
operating category.If the entity has such an SMBA but the derivative does not relate to providingfinancing to customers: accounting policy choice — operating or financingcategory.If the entity does not have an SMBA of providing financing to customers:
financing category.Foreign exchange differences are generally classified in the same category as the income andexpenses arising from the items that give rise to those differences. For example, foreignexchange differences on bank loans are generally classified in the financing category. However, ifapplying this requirement would involve undue cost or effort, an entity is permitted to classify theforeign exchange differences in the operating category.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6HKFRS 18 also includes specific requirements for classifying particular income and expenses.The following sections highlight requirements that may affect the classification of those items.LOOKING AHEAD: WHAT’S NEXT IN OUR SERIESThis publication has been prepared by staff of the HKICPA for information or illustration purposes. Members of the HKICPAand other users should also read the full HKFRS Accounting Standards, as set out in the HKICPA Members' Handbook forfurther reference, and seek professional advice where necessary.Q4
8.Navigating IFRSagenda decisions onHKFRS 18
9.From theory to practiceQ3
6.A deep-dive intoincome, expenses &information grouping
7.Beyond the headlines:
Changes to other HKFRSAccounting StandardsH1
1.Getting ready
2.Navigating the newstructure
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsINCOME AND EXPENSES FROM HYBRID CONTRACTS WITH HOSTLIABILITIESType of hybrid contractClassification of related income and expensesThe embedded derivative is required to beseparated from the host contractHost liability: apply the general classification requirements for liabilities.Separated embedded derivative: apply the classification requirementsfor derivatives.1The embeddedderivative is notrequired to beseparated fromthe host contractThe hybrid contract arisesfrom a transaction thatinvolves only the raising offinanceApply the general classification requirements for liabilities that arise fromsuch a transaction.1The hybrid contract doesnot arise from atransaction that involvesonly the raising of financeFinancing category for income and expenses specified in HKFRS 18.60that arise after initial recognition, if the hybrid contract is a financialliability within the scope of HKFRS 9 and is measured at amortised cost.2Operating category if the hybrid contract is an insurance contract withinthe scope of HKFRS 17.Otherwise, operating category, except for interest income and expensesand the effects of changes in interest rates from other liabilities, whichare classified in the financing category.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6The next issue will explore amendments to other HKFRS Accounting Standards arising from the issuance ofHKFRS 18.
1.Consider whether the entity has an SMBA of providing financing to customers, as this may affect the classification of related income andexpenses under HKFRS 18.
2.Even if the entity has an SMBA of providing financing to customers.The above tables are prepared based on Figures 4 and 5 of the HKFRS 18 Illustrative Examples and the relatedrequirements in HKFRS 18. Refer to those materials for detailed classification guidance.
HKFRS 18 Navigator Issue 6: A deep-dive into income, expenses & information grouping
下载原件PRINCIPLES OF AGGREGATION AND DISAGGREGATIONPRESENTING OPERATING EXPENSESnaturefunctionpersistencemeasurement basissizegeographical locationOne of the key objectives of HKFRS 18 is to ensure that material information is communicatedclearly and is not obscured by the way information is presented or disclosed. To achieve thisobjective, an entity is required to:
aggregate items with similar characteristics and disaggregate items with dissimilarcharacteristics;
group items in a way that does not obscure material information; andgroup items in the primary financial statements and the notes to fulfil their complementaryroles.When determining whether items should be aggregated or disaggregated, an entity considerscharacteristics, such as:
In this issue, we focus on HKFRS 18’s enhanced requirements for grouping and presentinginformation in financial statements, including the principles of aggregation and disaggregation, thepresentation of operating expenses and the classification requirements for specific income andexpenses.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6HKFRS 18 requires line items, subtotals and note disclosures to be labelled and described in away that faithfully represents their characteristics and helps users understand them. In particular,an entity should:
Use specific and informative descriptions, with generic labels such as "other" used onlywhen no more specific description is appropriate; andProvide further information about large, aggregated amounts where users mightquestion whether they include material items.DESCRIPTION OF ITEMSHKFRS 18 requires expenses in the operating category to be presented using one or both ofthe following characteristics:
By natureBy functionBased on the nature of the economicresources consumed to accomplish theentity’s activities.Examples include depreciation,amortisation, employee benefits and rawmaterials.Based on the activity to which theconsumed resource relates.Examples include cost of sales, sellingexpenses, research and developmentexpenses and administrative expenses.Important pointManagement should apply judgement in determining which presentation methodprovides the most useful structured summary of the entity’s operating expenses.The presentation method is not an accounting policy choice.depreciationamortisationemployee benefitsimpairment losses and reversals ofimpairment losseswrite-downs and reversals of write-downs ofinventoriesImportant pointThe amounts disclosed are not necessarily the same as the amounts recognisedas expenses during the period. For example, depreciation or employee benefitcosts capitalised as part of the carrying amount of an asset may also be includedin the disclosed amounts.Illustrative exampleNote 1 of HKFRS 18 IE 7 illustrates the additional disclosures required whenexpenses are presented by function.ADDITIONAL DISCLOSURES WHEN EXPENSES ARE PRESENTEDBY FUNCTIONIn determining how to present operating expenses, an entity should consider:
what line items provide the most useful information about the main components or drivers ofthe entity’s profitability;
what line items most closely represent how the business is managed and how managementreports internally;
standard industry practice; andwhether the allocation of particular expenses to functions would be arbitrary.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6DETERMINING THE PRESENTATION OF OPERATING EXPENSESWhere operating expenses are presented by function, HKFRS 18 requires an entity to disclose, ina single note, the total amount of each of the following specified expenses:
For each of the above expenses, an entity is also required to disclose:
the amount related to each line item in the operating category; anda list of any line items outside the operating category that also include amounts relating tothe total.GAINS AND LOSSES ON DERIVATIVES AND DESIGNATED HEDGINGINSTRUMENTSFOREIGN EXCHANGE DIFFERENCESCLASSIFICATION REQUIREMENTS FOR SPECIFIC INCOME AND EXPENSESType of financialinstrumentClassification of related income and expensesFinancial instrumentdesignated as a hedginginstrument applyingHKFRS 9Same category as the income and expenses affected by the risk the financialinstrument is used to manage;
Operating category if doing so would result in grossing up of gains and losses.Derivative not designatedas a hedging instrument,but used to manageidentified risksSame category as the income and expenses affected by the risk the financialinstrument is used to manage;
Operating category if doing so would result in grossing up of gains and losses orinvolve undue cost or effort.Derivative not used tomanage identified risksDoes the derivative relate to a transaction that involves only the raising offinance?No: operating category.Yes:
If the entity has a specified main business activity (SMBA) of providing financingto customers and the derivative relates to providing financing to customers:
operating category.If the entity has such an SMBA but the derivative does not relate to providingfinancing to customers: accounting policy choice — operating or financingcategory.If the entity does not have an SMBA of providing financing to customers:
financing category.Foreign exchange differences are generally classified in the same category as the income andexpenses arising from the items that give rise to those differences. For example, foreignexchange differences on bank loans are generally classified in the financing category. However, ifapplying this requirement would involve undue cost or effort, an entity is permitted to classify theforeign exchange differences in the operating category.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6HKFRS 18 also includes specific requirements for classifying particular income and expenses.The following sections highlight requirements that may affect the classification of those items.LOOKING AHEAD: WHAT’S NEXT IN OUR SERIESThis publication has been prepared by staff of the HKICPA for information or illustration purposes. Members of the HKICPAand other users should also read the full HKFRS Accounting Standards, as set out in the HKICPA Members' Handbook forfurther reference, and seek professional advice where necessary.Q4
8.Navigating IFRSagenda decisions onHKFRS 18
9.From theory to practiceQ3
6.A deep-dive intoincome, expenses &information grouping
7.Beyond the headlines:
Changes to other HKFRSAccounting StandardsH1
1.Getting ready
2.Navigating the newstructure
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsINCOME AND EXPENSES FROM HYBRID CONTRACTS WITH HOSTLIABILITIESType of hybrid contractClassification of related income and expensesThe embedded derivative is required to beseparated from the host contractHost liability: apply the general classification requirements for liabilities.Separated embedded derivative: apply the classification requirementsfor derivatives.1The embeddedderivative is notrequired to beseparated fromthe host contractThe hybrid contract arisesfrom a transaction thatinvolves only the raising offinanceApply the general classification requirements for liabilities that arise fromsuch a transaction.1The hybrid contract doesnot arise from atransaction that involvesonly the raising of financeFinancing category for income and expenses specified in HKFRS 18.60that arise after initial recognition, if the hybrid contract is a financialliability within the scope of HKFRS 9 and is measured at amortised cost.2Operating category if the hybrid contract is an insurance contract withinthe scope of HKFRS 17.Otherwise, operating category, except for interest income and expensesand the effects of changes in interest rates from other liabilities, whichare classified in the financing category.HKFRS 18 NAVIGATORA DEEP-DIVE INTO INCOME,EXPENSES AND INFORMATION GROUPINGJULY 2026 ISSUE 6The next issue will explore amendments to other HKFRS Accounting Standards arising from the issuance ofHKFRS 18.
1.Consider whether the entity has an SMBA of providing financing to customers, as this may affect the classification of related income andexpenses under HKFRS 18.
2.Even if the entity has an SMBA of providing financing to customers.The above tables are prepared based on Figures 4 and 5 of the HKFRS 18 Illustrative Examples and the relatedrequirements in HKFRS 18. Refer to those materials for detailed classification guidance.