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
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.
requires fixed overheads to be allocated to inventory on normal capacity. A wrong absorption rate distorts the balance sheet and cost of sales.
effective 1 Jan 2027, brings management metrics inside the audited statements. They now have to be supported.
requires a measure of profit per segment. It is only as good as the cost allocation beneath it.
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.
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.
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.
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 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 do not replace your auditor or your finance team. We give them the cost foundation they need to apply the standards with confidence.
Timed activities, cost pools and normal capacity, at product, customer and segment level. A base that stands up to scrutiny.
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.
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.
See also cost-to-serve and the margin cascade.
Canonical works behind this method. Each opens in a new tab.
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. Lectured alongside Professor Robert S. Kaplan at the CFO conference in Amsterdam (2009).
Call +351 910 313 731
Workshops20-21 Oct · Online, ZoomReserve 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