Chapter 4 - Income Statement and Related Information - IFRS Insights - IFRS Concepts and Application - Page 198: IFRS4-1

The nature-of-expense method uses the functions or natures of expenses are used to classify them. Examples of common natures include amortization expense, direct labor incurred, and employee benefits, among others. Arbitrary allocations of expenses are not made under this method. The function-of-expense method utilizes an entity's cost drivers to allocate costs arbitrarily. This method makes it possible to assess the appropriateness of costs depending on the revenues they generate.

The nature-of-expense method uses the functions or natures of expenses are used to classify them. Examples of common natures include amortization expense, direct labor incurred, and employee benefits, among others. Arbitrary allocations of expenses are not made under this method. The function-of-expense method utilizes an entity's cost drivers to allocate costs arbitrarily. This method makes it possible to assess the appropriateness of costs depending on the revenues they generate.