IFRS tells you the number. We tell you why.
Financial accounting sets the reporting obligation. But the number you report, the cost of inventory, the segment profit, the performance measure, is only as sound as the cost allocation underneath it. We build that cost model, so applying IFRS rests on evidence rather than estimates.
IAS 2
requires fixed overheads to be allocated to inventory on normal capacity. A wrong absorption rate distorts the balance sheet and cost of sales.
IFRS 18
effective 1 Jan 2027, brings management metrics inside the audited statements. They now have to be supported.
IFRS 8
requires a measure of profit per segment. It is only as good as the cost allocation beneath it.
The standard sets the obligation. The cost model sets the truth.
IFRS tells you that you must report inventory cost, segment profit and management measures consistently and comparably. It does not tell you how to attribute cost accurately. That is where most organisations fall back on inherited, rarely-questioned volume-based absorption rates.
When cost is spread by volume, complex products look cheap, demanding customers look profitable, and the number you report, while technically compliant, is wrong in substance. Time-Driven Activity-Based Costing closes that gap: it gives you a defensible cost allocation, traceable to the activity that caused it.
Where cost allocation meets the standard.
Inventories and normal capacity
IAS 2 requires fixed production overheads to be allocated to inventory cost on normal capacity, with idle-capacity cost expensed. TDABC measures that capacity and attributes the cost precisely.
Presentation and management measures
From 2027, Management Performance Measures enter the audited statements, reconciled to IFRS subtotals. A TDABC model makes those metrics traceable and defensible in front of the auditor.
Operating segments
IFRS 8 requires a measure of profit per segment, as management sees it. TDABC shows which customers, products and channels within each segment create or destroy value.
Impairment and net realisable value
Impairment tests by cash-generating unit and the net realisable value of inventory both depend on correctly attributed costs. A sound cost model supports both.
We build the model. Your auditor signs off the report.
We do not replace your auditor or your finance team. We give them the cost foundation they need to apply the standards with confidence.
Model the cost with TDABC
Timed activities, cost pools and normal capacity, at product, customer and segment level. A base that stands up to scrutiny.
Map to the standard
We link the model output to what each standard requires: inventory cost for IAS 2, subtotals and measures for IFRS 18, segment profit for IFRS 8.
Hand you a model you own
Your team updates and reconciles it. Every number you report becomes traceable to the activity that drove it, and defensible in front of the board.
Scope note: Cost and Profitability Consulting is not an audit firm and does not issue IFRS compliance opinions. Our work is to build and implement the cost model that underpins the application of these standards. Responsibility for financial reporting and its audit remains with the organisation and its auditors.
Questions a Finance Director asks.
What does Cost and Profitability do in relation to IFRS?
How does IAS 2 connect to activity-based costing?
Why is IFRS 18 relevant to our cost model?
Does IFRS 8 require us to disclose customer profitability?
See also cost-to-serve and the margin cascade.
Sources
Canonical works behind this method. Each opens in a new tab.
- StandardIAS 2 InventoriesInternational Accounting Standards Board (2003). IFRS Foundation.Governs fixed-overhead allocation on normal capacity and idle-cost expensing.
- StandardIFRS 8 Operating SegmentsInternational Accounting Standards Board (2006). IFRS Foundation.Requires segment-profit reporting that depends on sound cost attribution.
- StandardIFRS 18 Presentation and Disclosure in Financial StatementsInternational Accounting Standards Board (2024). IFRS Foundation.Effective 2027; brings management performance measures into audited statements.
- PaperTime-Driven Activity-Based CostingKaplan, R. S. & Anderson, S. R. (2004). Harvard Business Review 82(11).The founding article defining TDABC and its two-parameter model.
- PaperMeasure Costs Right: Make the Right DecisionsCooper, R. & Kaplan, R. S. (1988). Harvard Business Review 66(5).Seminal argument that averaged overhead distorts true product and customer cost.
Want the number you report backed by evidence?
We spend 30 minutes on your current cost model and where IAS 2, IFRS 18 or IFRS 8 are asking for more rigour than your absorption rates can give.
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops
Bring the method into the room.
One working profitability model, built from real data, that you take home at the end.
Reserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published