IFRS 18
What CFOs, Finance Leaders, and Boards Need to Know Now
Executive Summary
IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 and represents the most significant overhaul of financial statement presentation since IFRS was adopted. Issued by the IASB in April 2024, it takes effect for annual periods beginning on or after 1 January 2027, with comparative restatement required. Early adoption is permitted.
The standard introduces mandatory income statement categories, new required subtotals, and rigorous disclosure requirements for management-defined performance measures. Every IFRS reporting entity is affected — from listed corporates and financial institutions to insurers and infrastructure funds.
The central objective is comparability. IFRS 18 introduces a more disciplined structure for income statement presentation and reduces the flexibility that previously allowed inconsistent presentation across entities.
Key Impacts at a Glance
What IFRS 18 Changes
The New Income Statement Structure
Under IFRS 18, all income and expenses must be classified into one of five defined categories. This creates a more disciplined and comparable presentation framework.
| Category | Typical Content | Position in P&L |
|---|---|---|
| Operating | Revenue, COGS, operating expenses, depreciation and amortisation, impairments, and integral associates. | First — forms operating profit subtotal. |
| Investing | Returns on investments not integral to operations, dividends, interest from surplus cash, and fair value gains on non-operating assets. | Below operating profit. |
| Financing | Interest expense on borrowings, net FX on financing liabilities, and lease finance charges. | Below investing. |
| Income Taxes | Current and deferred income tax. | Separate line below profit before tax. |
| Discontinued Operations | Results from operations classified as discontinued under IFRS 5. | Below continuing operations. |
New Mandatory Subtotals
IFRS 18 requires two subtotals that are not mandatory lines today:
- Operating profit — the sum of all income and expenses in the operating category.
- Profit before financing and income tax — includes operating and investing income.
These subtotals are not optional. Analysts and investors are likely to use them as primary valuation and benchmarking anchors.
Management-Defined Performance Measures
A management-defined performance measure, or MPM, is a subtotal or income/expense measure communicated publicly to convey management’s view of financial performance and is not already defined or required by IFRS.
Common examples include Adjusted EBITDA, Underlying Profit, Normalised Earnings, and Cash NPAT. Under IFRS 18, these measures require formal disclosure, reconciliation, and explanation in the financial statements.
What Entities Must Disclose for Each MPM
- A clear definition of the measure and why it is used.
- A labelled reconciliation from the most directly comparable IFRS subtotal to the MPM.
- Explanations for each adjustment item, including tax and non-controlling interest effects.
- Consistency disclosures where the measure changes year-on-year.
- An explanation if the MPM is removed because it is no longer considered relevant.
What This Means for Companies
Financial Statement Presentation Will Change
- The structure of the primary income statement will be redesigned for every entity.
- Items currently presented in operating may move to investing or financing.
- Entities with complex income streams face the most significant reclassification work.
Operating Profit and EBITDA May Change
- Reported operating profit may differ from prior periods.
- EBITDA, EBIT, and other derived metrics may change in absolute terms.
- Adjusted measures may become formal MPMs with disclosure obligations.
Systems and Processes Must Be Updated
- Charts of accounts should be mapped to the five IFRS 18 categories.
- General ledger coding, management reporting, and consolidation systems may require reconfiguration.
- Interim reporting in 2027 will require 2026 comparatives.
Sector-Specific Impacts
Banking and Financial Institutions
Banks face classification challenges around interest income, deposit costs, treasury activities, and investment portfolios. Net interest margin and operating profit require careful assessment.
Insurance Companies
Insurers must manage the interaction between IFRS 18 and IFRS 17, particularly around investment returns, underwriting results, and insurance finance income and expenses.
Non-Financial Corporates
Corporates must reassess items such as interest on borrowings, dividend income, associate income, asset disposals, treasury investments, and FX on financing liabilities.
Non-Financial Corporates – Typical Reclassifications
| Income / Expense Item | Before IFRS 18 | After IFRS 18 |
|---|---|---|
| Revenue and COGS | Operating | Operating unchanged |
| Depreciation and amortisation | Operating | Operating unchanged |
| Interest on borrowings | Often in EBIT or below EBIT — varies | Financing mandatory |
| Dividend income — surplus cash | Often operating or “other” | Investing |
| Associate income — integral to operations | Often operating or separate line | Operating |
| Associate income — non-integral | Often operating or separate line | Investing |
| Gain on asset disposal | Often operating or “other” | Operating or investing, depending on asset |
| Fair value gains — investment assets | Often “other income” | Investing |
| FX on financing liabilities | Often operating or finance costs | Financing |
Effective Date and Transition
The comparative restatement requirement is critical. For December year-end entities, the 2026 comparative period must be restated under IFRS 18 classifications. This means assessment and mapping work should be substantially complete during 2026.
What Companies Should Do Now
- Conduct a structured impact assessment and map material income statement line items to the five IFRS 18 categories.
- Identify all management-defined performance measures communicated publicly.
- Review internal and management reporting frameworks.
- Audit and update the chart of accounts.
- Assess the impact on ERP and consolidation systems.
- Engage with lenders and treasury teams regarding covenant definitions.
- Plan investor and analyst communications.
- Prepare transition disclosures.
- Engage auditors early on significant classification judgements.
IFRS 18: More Than Presentation
IFRS 18 is not simply a reformatting exercise. It changes how financial performance is defined, measured, and communicated. Operating profit becomes a standardised, audited anchor, and non-GAAP measures move into the formal financial statements.
Entities that prepare early will be better positioned to manage the transition, control the narrative with investors, and avoid the operational risk of last-minute reclassification decisions.
For advisory support on IFRS 18 transition, contact Altum Advisory.
Contact Altum Advisory
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