What is IFRS 18?
IFRS 18 Presentation and Disclosure in Financial Statements was issued by the IASB in April 2024. It replaces IAS 1 and applies to annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. Many IAS 1 requirements carry over, but the statement of profit or loss changes substantially.
Five categories in the income statement
Income and expenses are classified into five categories: operating, investing, financing, income taxes and discontinued operations.
Classification depends partly on the entity's main business activities. Banks, insurers and investment entities may classify some items as operating that other companies would treat as investing or financing.
Two new required subtotals
These subtotals make results more comparable between companies that previously defined "operating profit" in different ways.
- Operating profit
- Profit before financing and income taxes
Management-defined performance measures (MPMs)
If you communicate subtotals such as "adjusted EBITDA" outside the financial statements, IFRS 18 may treat them as management-defined performance measures. They must be disclosed in a single note, explained, and reconciled to the most directly comparable IFRS subtotal, including the tax and non-controlling interest effects of each reconciling item.
Better aggregation and disaggregation
IFRS 18 adds principles on grouping items, so that material information is not hidden in large "other" lines. Entities presenting expenses by function must also disclose certain expenses by nature in the notes.
Related changes to cash flow statements
Consequential amendments to IAS 7 make operating profit the starting point for the indirect method and remove most classification choices for interest and dividends for non-financial entities.
What finance teams should do now
- Map your chart of accounts to the new categories and test the new subtotals on current figures
- Identify any alternative performance measures used with investors and lenders
- Update ERP reporting structures (for example in SAP S/4HANA or Dynamics) so the new statements can be produced automatically
- Prepare restated 2026 comparatives alongside your normal 2026 close
This article is general information, not accounting, tax or legal advice. Rates, thresholds and effective dates should be confirmed with the official sources (IFRS Foundation, tax authorities, regulators) or your adviser before acting.