For financial reporting periods beginning on or after 1 January 2027, entities must apply the requirements of IFRS 18 “Presentation and Disclosure in Financial Statements”. The International Accounting Standards Board has issued the new standard, officially replacing IAS 1 “Presentation of Financial Statements”.
Financial Statements will have a different presentation on their financial performance statements applicable both to the financial reporting period beginning on or after 1 January 2027 but also to its comparative period, beginning on or after 1 January 2026.
Entities must therefore act NOW, proactively, incorporating IFRS 18 classifications and disclosures when preparing 2026 their financial data.
IFRS 18 does not change the measurement or recognition criteria of assets and liabilities, rather it impacts how the results in profit or loss statements are presented, classified, and of course understood.
For many entities, the outcome will change the performance trends, ratios, management Key Performance Indicators (KPIs), covenants, communication with capital providers.
-
The New Structure of Financial Performance
IFRS 18 introduces a standardized structure for income and expenses, similar to the one used for the Statement of Cash Flows, requiring entities to classify them into three defined categories:
- Operating — the main revenue-generating activities and other activities not classified as investing or financing (ie. The residual category)
- Investing — returns from assets generating income individually and largely independently (e.g., investment properties, equity or debt investments).
- Financing — income and expenses from funding the business (interest income/expense, unwinding of discounting, etc.).
In addition, IFRS 18 requires new mandatory subtotals, including:
- Operating profit or loss
- Profit or loss before financing and income taxes
This creates clearer comparability across industries, but it may also reposition familiar metrics. Income previously presented as “other income” may fall within investing; interest income may fall within financing, intra-group interest may require reconsideration in group reporting. A technical mapping exercise is therefore required.
Act now: Revise your current mapping of the your profit or loss accounts to the new categories and subtotals, documenting rationale and policy decisions.
-
Increased expectation of transparency through Disaggregation and Aggregation
IFRS 18 significantly strengthens requirements relating to aggregation and disaggregation, requiring entities to present information “in a manner that is understandable, relevant and faithfully representative,” supported by decision-useful detail.
The use of broad “other” categories is expected to decrease. Items of dissimilar nature or function should not be aggregated solely due to system convenience. More granular note disclosures will be required where aggregation is unavoidable.
Action: Delete redundant codes, redesign your accounts groupings to align the nature and function of your income and expenses.
-
Management Defined Performance Measures (MPMs)
IFRS 18 defines Management Defined Performance Measures, as subtotals of income and expenses outside the required IFRS totals, which are used by management in public communication (e.g., EBITDA, underlying profit, adjusted margin). Including these in the financial performance reporting will practically enhance transparency and reperformance of publicly available information which is not otherwise derived through IFRSs.
MPMs now require:
- Clear labeling
- Reconciliation to IFRS subtotals
- Explanation of why the measure reflects management’s view
- Consistency over time, or explanation of change
Action: Review all externally communicated KPIs, document what each one means, how it is calculated based on IFRS numbers and prepare reconciliations.
-
System, Data, and Reporting Alignment
The restructuring requires alignment across:
- Accounting Software and Chart of Accounts
- Reporting packages
- Consolidation processes
Action: Implement changes in 2026 to enable test reporting presentation early and avoid manual year-end reclassifications.
-
Governance, Communication, and Audit Engagement
Because IFRS 18 modifies performance narrative, communication becomes a core deliverable:
- Boards must understand how “performance” is redefined
- Loan covenants may require renegotiation or clarification
- Audit trails must demonstrate classification judgments
Action: Assess the possible impact on the your financial performance results, and prepare a targeted internal and external communication plan with relevant stakeholders.
Conclusion
IFRS 18 represents a significant change in performance presentation, enhancing transparency, comparability, and clarity. Successful implementation as always will depend on effective planning, communication, training and alignment between finance, technology, and executive decision-making. The best transitions will be those that view IFRS 18 not just as an additional compliance burden, but as an opportunity to tell a clearer story of the business performance.
