IFRS 18 Thought Leadership

IFRS 18 | The Biggest Change to Financial Statement Presentation in Decades
Altum Advisory – Financial Statement Consulting
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IFRS 18

The Biggest Change to Financial Statement Presentation in Decades

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

Structured Income Statement A five-category income statement replaces the current open-format approach.
New Mandatory Subtotals Operating profit and profit before financing and income tax become key audited anchors.
MPM Disclosure Adjusted EBITDA, underlying profit, and similar measures require reconciliation and explanation.
Reduced “Other” Categories Entities must disaggregate income and expense with greater precision.
Sector-Specific Impacts Banks, insurers, and corporates each face different classification challenges.
Investor Communication Covenant definitions, analyst messaging, and internal reporting frameworks may need to change.

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

1 Jan 2027 Mandatory effective date
31 Dec 2027 First mandatory reporting date for December year-end entities
2026 Comparative period must be restated
Early Adoption Permitted immediately

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.

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