IFRS 18 applies to reporting periods beginning on or after 1 January 2027, but its impact on comparative information, systems and financial communication should be assessed now.
The current international financial reporting standard IAS 1 will be replaced by the new standard IFRS 18 Presentation and Disclosure in Financial Statements. It introduces a more consistent structure for the statement of profit or loss and improves comparability between companies.
For companies with a calendar financial year, the 2026 comparative information presented in the 2027 financial statements must also comply with the new standard. Therefore, IFRS 18 is not simply a matter of changing the format of the 2027 financial statements.
1. The statement of profit or loss gets a clearer structure
Income and expenses will be classified into five categories: operating, investing, financing, income taxes and discontinued operations.
The new required subtotals will generally include operating profit or loss and profit or loss before financing and income taxes. Special rules apply to the latter subtotal for certain companies that provide financing to customers as a main business activity.
The operating category is the default category. This means that it also includes volatile or unusual items unless the standard requires them to be classified elsewhere.
Special rules apply to companies whose main business activity is investing in certain types of assets or providing financing to customers. Companies will therefore need to assess their business model and transactions carefully.
2. Management performance measures must be transparent
Adjusted operating profit, adjusted EBITDA or another subtotal of income and expenses that is not specified by IFRS Accounting Standards and is used in public communications may qualify as a management-defined performance measure (MPM).
These measures must be disclosed in a single note that explains their purpose and how they are calculated. The note must also provide a reconciliation to the most directly comparable total or subtotal required or defined by IFRS Accounting Standards.
The reconciliation must show the reconciling items, their income tax effect and the effect on non-controlling interests.
Not all key performance indicators (KPIs) are MPMs, but companies should systematically review the measures they use.
3. Aggregation and disaggregation require more judgement
The primary financial statements must provide a useful structured summary, while the notes provide material additional information.
Items with similar characteristics may be aggregated, but material information about items with different characteristics must not be obscured. At the same time, excessive detail should not make material information difficult to identify.
The general label “other” should only be used when a more informative description cannot be found. Even then, the label should describe the content of the aggregated items as precisely as possible.
The presentation of operating expenses by nature, by function or using a mixed presentation must be based on which approach provides the most useful structured summary of the company’s expenses.
4. Comparative information must be restated
IFRS 18 will be applied retrospectively. On initial application, companies must provide, for each line item in the statement of profit or loss for the comparative period, a reconciliation between the amounts previously presented under IAS 1 and the restated amounts under IFRS 18.
Companies must therefore be able to reliably reclassify their 2026 transactions into the new categories.
The impact also extends to the statement of cash flows. Following amendments to IAS 7, companies using the indirect method will start the reconciliation of cash flows from operating activities from operating profit or loss.
5. Start preparing before 2027
Treat the implementation of IFRS 18 as a separate financial reporting project. A practical checklist includes:
- Map the statement of profit or loss to the IFRS 18 categories and document more complex judgements.
- Review alternative performance measures used in public communications and identify potential MPMs.
- Prepare a trial set of financial statements using 2026 data and prepare a line-by-line reconciliation between IAS 1 and IFRS 18.
- Assess the chart of accounts and systems to ensure that the new classifications and MPM adjustments can be tracked.
- Involve management, auditors, investors, IT and financial reporting teams early in the process.
IFRS 18 is more than a change in financial statement presentation. It affects data, processes, internal controls and financial communication with investors.
Early trial mapping can help avoid a situation where the necessary level of detail for 2026 comparative information or the underlying data for MPMs cannot be reconstructed later.
