HOW DOES THE NEW STRUCTURE OF THE STATEMENT OF PROFIT OR LOSS AFFECT FIs?Building on the previous HKFRS 18 Navigator issues, which introduced the key changes to thestatement of profit or loss under HKFRS 18 Presentation and Disclosure in Financial Statements, thisissue focuses on how HKFRS 18 applies to financial institutions (FIs), including banks and insurers,given their distinct business models and extensive use of financial instruments.HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5In addition to the general requirements of HKFRS 18, the concept of SMBA is particularlyimportant for FIs, whose business models often involve a combination of financing, investing andtreasury activities. Entities with an SMBA are required to classify certain income and expensesin the operating category which would otherwise be classified in the investing or financingcategories. Further guidance on determining whether an entity has an SMBA and the impact onthe classification is provided in HKFRS 18 Navigator Issue 3.SPECIFIED MAIN BUSINESS ACTIVITY (SMBA)
HKFRS 18 includes specific requirements for the classification of foreign exchange differences,gains and losses on derivatives and hedging instruments, and income and expenses from hybridcontracts with a host liability. Given the extensive use of derivatives and other complex financialinstruments by FIs, these requirements are particularly relevant and warrant close attention.Further discussion will be provided in the next issue.TOTALS AND SUBTOTALSHKFRS 18 requires entities to present specified totals and subtotals, such as operating profit orloss, while allowing additional line items and subtotals when they provide a useful structuredsummary of the entity’s financial performance. As FIs often present industry-specific line itemsand subtotals, such as net interest income, they should assess whether these presentationscontinue to comply with HKFRS 18 and whether any changes are needed.CLASSIFICATION FOR SPECIFIC INCOME AND EXPENSESIllustrative statement of profit or loss for a bank with SMBA of investing infinancial assets and providing financing to customersInterest revenueOperatingInterest expenseNet interest incomeFee and commission incomeFee and commission expensesNet fee and commission incomeNet trading incomeNet investment incomeCredit impairment lossesEmployee benefitsDepreciation and amortisationOther operating expensesOperating profitShare of profit or loss of associates and joint venturesInvestingProfit before financing and income taxesInterest expenses on borrowings that are not part of main business activityFinancingInterest expenses on pension and lease liabilitiesProfit before income taxesIncome tax expenseProfitPotential impactsBanks generally have an SMBA of providing financing to customers. However, not all banks willautomatically have an SMBA of investing in assets. Whether investing in assets is a mainbusiness activity requires a fact-specific assessment, and affects the classification of income andexpenses from cash and cash equivalents and other assets.Most banks currently present all interest income and expenses within the net interest incomesubtotal. Under HKFRS 18, this will change, as interest relating to liabilities that arise fromtransactions that do not involve only the raising of finance (e.g. lease liabilities) will be classified inthe financing category rather than the operating category.If the bank applies the accounting policy choice in paragraph 65(a)(ii) of HKFRS 18 to classifyincome and expenses from all liabilities that arise from transactions that involve only the raising offinance, including those that are not part of its main business activities, in the operating category:
it does not present the subtotal of profit before financing and income taxes; andthe accounting policy choice may affect how it classifies income and expenses arising fromhybrid contracts with host liabilities, foreign exchange differences and derivatives (Thesetopics will be explored in the next issue).HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5BANKSNewrequiredsubtotalIllustrative statement of profit or loss for an insurer with an SMBA ofinvesting in financial assetsInsurance revenueOperatingInsurance service expensesInsurance service resultInvestment incomeCredit impairment lossesInsurance finance expensesNet financial resultOther operating expensesOperating profitShare of profit or loss of associates and joint venturesInvestingProfit before financing and income taxesInterest expenses on borrowings and pension liabilitiesFinancingProfit before income taxesIncome tax expenseProfitHKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5INSURERSNewrequiredsubtotalPotential impactsHKFRS 18 specifies that insurance finance income and expenses recognized under HKFRS 17Insurance Contracts, and income and expenses from issued investment contracts withparticipation features recognized applying HKFRS 9 Financial Instruments, are included in theoperating category.Some insurers invest in associates and joint ventures as part of the assets that back theirinsurance liabilities, and these investments are considered as part of the insurers’ main businessactivities. Presenting the results from such investments outside the operating category wouldcreate a classification mismatch. HKFRS 18 provides a transition provision for entities eligible toapply paragraph 18 of HKAS 28 Investment in Associates and Joint Venturesto change theirelection from measuring investments in associates or joint ventures using the equity method tomeasuring them at fair value through profit or loss (FVTPL) in accordance with HKFRS 9. Forsuch investments, changing from the equity method to FVTPL would enable the related incomeand expenses to be classified in the operating category, thereby avoiding a classificationmismatch.
(1)
On 26 June 2026, the IASB issued targeted amendments to IAS 28 to clarify that entitieswhose main business activity is investing in particular types of assets (as defined in IFRS 18)
are eligible to elect the fair value option to account for investments in associates and jointventures.
(1)
MANAGEMENT-DEFINED PERFORMANCE MEASURES (MPMS)
Financial measuresCould bean MPM? ExplanationsBANKSAdjusted net interest income LikelyIt is an adjusted subtotal of interest income and interestexpenses.Return on equityDepends The ratio itself is excluded by HKFRS 18.B116(c) and is notan MPM. However, the numerator may be an MPM if it is anadjusted profit measure that meets all aspects of thedefinition of an MPM.Net interest marginNoThe ratio itself is excluded by HKFRS 18.B116(c) and is notan MPM. Its numerator is usually ‘net interest income’, whichis a subtotal similar to gross profit and is specifically excludedby HKFRS 18.118(a) and B123(a).INSURERSUnderwriting resultDepends Whether it is an MPM depends on how the measure isdefined and whether it represents an adjusted subtotal ofincome and expenses that communicates management’sview of financial performance and is used in publiccommunciation.Insurance service resultNoIt is a subtotal comprising insurance revenue and insuranceservices expenses. Similar to gross profit, it is specificallyexcluded by HKFRS 18.118(a) and B123(c).Contractual service marginNoIt is a component of the asset or liability for the group ofinsurance contracts that represents the unearned profit theentity will recognise as it provides insurance contract servicesin the future. It is not a subtotal of income and expenses.HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5Another key change introduced by HKFRS 18 is the new concept of MPMs, which is discussed inHKFRS 18 Navigator Issue 4 . This change is particularly relevant to FIs, which commonly use financialmeasures in annual reports and investor communications. These measures often include balancesheet metrics, performance ratios, subtotals of income and/or expenses, and regulatory measures. FIswill therefore need to assess whether any of these measures meet the definition of an MPM and, if so,comply with the related disclosure requirements, which are subject to audit.Illustrative financial measures reported by FIsThe following examples are illustrative only. Whether a measure is an MPM depends on thespecific facts and circumstances and whether the measure meets all aspects of the definition of anMPM in HKFRS 18.HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5LOOKING AHEAD: WHAT’S NEXT IN OUR SERIESThis publication has been prepared by staff of HKICPA for information or illustration purposes. Members of the HKICPAand other users should also read the full HKFRS Accounting Standards, as found in the HKICPA Members’ Handbook forfurther reference, and seek professional advice where necessary.Q4
8.Navigating IFRSagenda decisions onHKFRS 18
9.From theory topracticeQ3
6.A deep-dive intoincome, expenses &information grouping
7.Beyond the headlines:
Changes to otherHKFRS AccountingStandardsH1
1.Getting ready
2.Navigating the newstructure
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsIn the next issue, we will explore the classification of specific income and expenses and discusshow financial information should be grouped in financial statements.
HKFRS 18 Navigator Issue 5: Insights for Financial Institutions
下载原件HOW DOES THE NEW STRUCTURE OF THE STATEMENT OF PROFIT OR LOSS AFFECT FIs?Building on the previous HKFRS 18 Navigator issues, which introduced the key changes to thestatement of profit or loss under HKFRS 18 Presentation and Disclosure in Financial Statements, thisissue focuses on how HKFRS 18 applies to financial institutions (FIs), including banks and insurers,given their distinct business models and extensive use of financial instruments.HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5In addition to the general requirements of HKFRS 18, the concept of SMBA is particularlyimportant for FIs, whose business models often involve a combination of financing, investing andtreasury activities. Entities with an SMBA are required to classify certain income and expensesin the operating category which would otherwise be classified in the investing or financingcategories. Further guidance on determining whether an entity has an SMBA and the impact onthe classification is provided in HKFRS 18 Navigator Issue 3.SPECIFIED MAIN BUSINESS ACTIVITY (SMBA)
HKFRS 18 includes specific requirements for the classification of foreign exchange differences,gains and losses on derivatives and hedging instruments, and income and expenses from hybridcontracts with a host liability. Given the extensive use of derivatives and other complex financialinstruments by FIs, these requirements are particularly relevant and warrant close attention.Further discussion will be provided in the next issue.TOTALS AND SUBTOTALSHKFRS 18 requires entities to present specified totals and subtotals, such as operating profit orloss, while allowing additional line items and subtotals when they provide a useful structuredsummary of the entity’s financial performance. As FIs often present industry-specific line itemsand subtotals, such as net interest income, they should assess whether these presentationscontinue to comply with HKFRS 18 and whether any changes are needed.CLASSIFICATION FOR SPECIFIC INCOME AND EXPENSESIllustrative statement of profit or loss for a bank with SMBA of investing infinancial assets and providing financing to customersInterest revenueOperatingInterest expenseNet interest incomeFee and commission incomeFee and commission expensesNet fee and commission incomeNet trading incomeNet investment incomeCredit impairment lossesEmployee benefitsDepreciation and amortisationOther operating expensesOperating profitShare of profit or loss of associates and joint venturesInvestingProfit before financing and income taxesInterest expenses on borrowings that are not part of main business activityFinancingInterest expenses on pension and lease liabilitiesProfit before income taxesIncome tax expenseProfitPotential impactsBanks generally have an SMBA of providing financing to customers. However, not all banks willautomatically have an SMBA of investing in assets. Whether investing in assets is a mainbusiness activity requires a fact-specific assessment, and affects the classification of income andexpenses from cash and cash equivalents and other assets.Most banks currently present all interest income and expenses within the net interest incomesubtotal. Under HKFRS 18, this will change, as interest relating to liabilities that arise fromtransactions that do not involve only the raising of finance (e.g. lease liabilities) will be classified inthe financing category rather than the operating category.If the bank applies the accounting policy choice in paragraph 65(a)(ii) of HKFRS 18 to classifyincome and expenses from all liabilities that arise from transactions that involve only the raising offinance, including those that are not part of its main business activities, in the operating category:
it does not present the subtotal of profit before financing and income taxes; andthe accounting policy choice may affect how it classifies income and expenses arising fromhybrid contracts with host liabilities, foreign exchange differences and derivatives (Thesetopics will be explored in the next issue).HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5BANKSNewrequiredsubtotalIllustrative statement of profit or loss for an insurer with an SMBA ofinvesting in financial assetsInsurance revenueOperatingInsurance service expensesInsurance service resultInvestment incomeCredit impairment lossesInsurance finance expensesNet financial resultOther operating expensesOperating profitShare of profit or loss of associates and joint venturesInvestingProfit before financing and income taxesInterest expenses on borrowings and pension liabilitiesFinancingProfit before income taxesIncome tax expenseProfitHKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5INSURERSNewrequiredsubtotalPotential impactsHKFRS 18 specifies that insurance finance income and expenses recognized under HKFRS 17Insurance Contracts, and income and expenses from issued investment contracts withparticipation features recognized applying HKFRS 9 Financial Instruments, are included in theoperating category.Some insurers invest in associates and joint ventures as part of the assets that back theirinsurance liabilities, and these investments are considered as part of the insurers’ main businessactivities. Presenting the results from such investments outside the operating category wouldcreate a classification mismatch. HKFRS 18 provides a transition provision for entities eligible toapply paragraph 18 of HKAS 28 Investment in Associates and Joint Venturesto change theirelection from measuring investments in associates or joint ventures using the equity method tomeasuring them at fair value through profit or loss (FVTPL) in accordance with HKFRS 9. Forsuch investments, changing from the equity method to FVTPL would enable the related incomeand expenses to be classified in the operating category, thereby avoiding a classificationmismatch.
(1)
On 26 June 2026, the IASB issued targeted amendments to IAS 28 to clarify that entitieswhose main business activity is investing in particular types of assets (as defined in IFRS 18)
are eligible to elect the fair value option to account for investments in associates and jointventures.
(1)
MANAGEMENT-DEFINED PERFORMANCE MEASURES (MPMS)
Financial measuresCould bean MPM? ExplanationsBANKSAdjusted net interest income LikelyIt is an adjusted subtotal of interest income and interestexpenses.Return on equityDepends The ratio itself is excluded by HKFRS 18.B116(c) and is notan MPM. However, the numerator may be an MPM if it is anadjusted profit measure that meets all aspects of thedefinition of an MPM.Net interest marginNoThe ratio itself is excluded by HKFRS 18.B116(c) and is notan MPM. Its numerator is usually ‘net interest income’, whichis a subtotal similar to gross profit and is specifically excludedby HKFRS 18.118(a) and B123(a).INSURERSUnderwriting resultDepends Whether it is an MPM depends on how the measure isdefined and whether it represents an adjusted subtotal ofincome and expenses that communicates management’sview of financial performance and is used in publiccommunciation.Insurance service resultNoIt is a subtotal comprising insurance revenue and insuranceservices expenses. Similar to gross profit, it is specificallyexcluded by HKFRS 18.118(a) and B123(c).Contractual service marginNoIt is a component of the asset or liability for the group ofinsurance contracts that represents the unearned profit theentity will recognise as it provides insurance contract servicesin the future. It is not a subtotal of income and expenses.HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5Another key change introduced by HKFRS 18 is the new concept of MPMs, which is discussed inHKFRS 18 Navigator Issue 4 . This change is particularly relevant to FIs, which commonly use financialmeasures in annual reports and investor communications. These measures often include balancesheet metrics, performance ratios, subtotals of income and/or expenses, and regulatory measures. FIswill therefore need to assess whether any of these measures meet the definition of an MPM and, if so,comply with the related disclosure requirements, which are subject to audit.Illustrative financial measures reported by FIsThe following examples are illustrative only. Whether a measure is an MPM depends on thespecific facts and circumstances and whether the measure meets all aspects of the definition of anMPM in HKFRS 18.HKFRS 18 NAVIGATORINSIGHTS FOR FINANCIALINSTITUTIONSJUNE 2026 ISSUE 5LOOKING AHEAD: WHAT’S NEXT IN OUR SERIESThis publication has been prepared by staff of HKICPA for information or illustration purposes. Members of the HKICPAand other users should also read the full HKFRS Accounting Standards, as found in the HKICPA Members’ Handbook forfurther reference, and seek professional advice where necessary.Q4
8.Navigating IFRSagenda decisions onHKFRS 18
9.From theory topracticeQ3
6.A deep-dive intoincome, expenses &information grouping
7.Beyond the headlines:
Changes to otherHKFRS AccountingStandardsH1
1.Getting ready
2.Navigating the newstructure
3.Defining what you do:
Determination of mainbusiness activities
4.Management-definedPerformance Measures
5.Insights for financialinstitutionsIn the next issue, we will explore the classification of specific income and expenses and discusshow financial information should be grouped in financial statements.