How to map your chart of accounts to the IFRS 18 categories
The first real task of implementation. Which accounts are contentious, where the mapping will be wrong the first time, and how to record it.
Mapping a chart of accounts to the IFRS 18 categories is the first substantial task of implementation, and it is the one every consolidation vendor answers with a product demonstration (insightsoftware, Wolters Kluwer). This is how to do it, including the parts that will be wrong on the first pass.
Do one thing before you start
Settle whether the entity has a specified main business activity, and write the answer down. It decides where interest and dividends go, so a mapping done before that question is answered is a mapping you will redo. Our free tool walks the four questions and drafts the rationale, and the longer explanation is here.
For everything below, assume the ordinary corporate case: no specified main business activity.
Work backwards, not forwards
The instinct is to go down the trial balance asking "is this operating?" That question has no direct answer, because operating is the residual category: anything not caught by investing or financing falls into it by default.
So invert it:
- Find everything meeting the investing description. Income and expenses from assets that generate a return individually and largely independently of the entity's other resources.
- Find everything meeting the financing description. Income and expenses on liabilities from financing transactions, and interest on other liabilities.
- Income tax and discontinued operations sit in their own categories.
- Everything left is operating. Then read that list.
Step four is the one that matters, and it is not a compliance step. If something has landed in operating that you would not call operating in a results presentation, you have found either a disaggregation question or a management performance measure.
The accounts that are actually contentious
Most of a chart of accounts maps without argument. Revenue, cost of sales, payroll, rent, marketing, professional fees: all operating. The work concentrates in a short list.
The finance section splits. Interest received on cash is investing; interest paid on borrowings is financing. One line in most statements becomes two entries in two categories, and that split is worth its own read.
Interest on lease liabilities is financing, and this is not a choice. IFRS 18 requires interest expense on liabilities that do not arise only from raising finance to sit in financing, and a lease liability is exactly that. Depreciation of the right-of-use asset stays in operating. So a single "finance charges on leases" account maps cleanly, but a combined lease account has to be split.
Net pension finance cost is financing, also not a choice, for the same reason. Service cost stays in operating. A combined pension account has to be split too.
Unwinding of discount on provisions is financing. Same limb again. This one is often buried inside the provision movement account rather than presented separately, which means it has to be extracted rather than mapped.
Foreign exchange follows the item it arose on. A single net foreign exchange account cannot be mapped to one category at all. It has to be allocated to the items that produced it, and the basis of that allocation is a judgement worth recording.
"Other income" and "sundry" accounts have to be opened up. They are usually a mixture, and IFRS 18 tightens what may be aggregated, so a residual bucket carried forward unchanged is a disaggregation problem waiting to be raised.
Exceptional items are not a category. IFRS 18 has no home for them, so lines presented that way today go into whichever of the three categories they belong to, which for most of them is operating.
What the mapping table needs
Four columns, not two:
| Column | Why |
|---|---|
| Account | The code and the description as it stands |
| IFRS 18 category | Operating, investing, financing, tax, discontinued |
| Basis | One sentence saying why, in terms of the category description |
| Split required | Whether the account has to be divided before it can be mapped |
The basis column is the one people leave out and the one an auditor reads. A mapping table with a category and no reason is a set of assertions; with a reason it is a working paper. It is also what makes the table reviewable by somebody who did not build it.
The split column matters more than it looks. Every account needing a split is a change to the general ledger or to the consolidation mapping, not just to a spreadsheet, and those have lead times.
Where the first pass will be wrong
Three predictable places.
Accounts whose names mislead. A "finance income" account holding a government grant, or "other interest" holding an intercompany balance. Names accumulate history, and mapping from the name alone produces a confident wrong answer.
Accounts used differently across the group. The same code meaning one thing in one subsidiary and something else in another is common and does not show up until the consolidated mapping disagrees with itself.
Immaterial-looking accounts that need splitting. A small combined pension account is easy to leave alone and is one of the few places the standard positively requires a division.
Our free chart of accounts mapper runs the first pass against your own account names and flags what needs a decision. It reads names rather than facts, which is exactly the limitation described above, and it says so on the page.
One limit worth stating
A mapping is not a policy. It records where each account goes; it does not record why the entity concluded it has no specified main business activity, how a composite line was allocated, or which subtotals are management performance measures. Those are separate papers, and the mapping is only defensible on top of them.
To have the reclassification worked through on your own statement, with the paragraph behind each answer, join the waitlist.