IFRS 18

The International Accounting Standards Board (IASB) has issued IFRS 18 – Presentation and Disclosure in Financial Statements, marking one of the most significant changes to financial statement presentation in decades. This new standard replaces IAS 1 and aims to enhance comparability, transparency, and usefulness of financial information for investors and other stakeholders.

While IFRS 18 will be effective from 1 January 2027, organizations should begin preparing now, as its impact goes far beyond presentation and may influence systems, processes, and performance communication.

Why IFRS 18 Matters

Financial statements are a primary source of information for decision-makers. However, under existing requirements, entities often present performance differently, making comparisons across companies difficult. IFRS 18 addresses this challenge by introducing a more structured and consistent approach to presenting financial performance.

The standard responds to long-standing investor concerns about:

• Inconsistent income statement structures
• Lack of transparency around management-defined performance measures
• Limited comparability between entities

Key Changes Introduced by IFRS 18

1. A Structured Income Statement

IFRS 18 introduces three defined categories in the statement of profit or loss:

• Operating
• Investing
• Financing

This structure improves consistency across entities and enhances users’ understanding of how an entity generates profits and cash flows.

Importantly, IFRS 18 introduces a defined “Operating Profit” subtotal, a metric widely used by investors but previously not standardized under IFRS.

2. Enhanced Transparency of Management Performance Measures (MPMs)

Many entities present alternative performance measures such as “adjusted EBITDA” or “normalized profit.” IFRS 18 formally addresses these by requiring:

• Clear identification of Management Performance Measures
• Reconciliations to IFRS-defined totals
• Explanations of why management uses these measures

This will improve trust and reduce ambiguity around non-IFRS measures.

3. Improved Grouping and Disaggregation

The standard emphasizes better grouping of similar items and clearer disaggregation of material information, reducing the risk of important details being obscured in aggregated figures.

This principle-based approach encourages entities to present information in a way that genuinely reflects their business model.

4. More Consistent Presentation Across Financial Statements

IFRS 18 strengthens the link between:

• The statement of profit or loss
• The statement of financial position
• The statement of cash flows

This consistency enhances the overall coherence of financial reporting.

What This Means for Organizations

Although IFRS 18 is primarily a presentation standard, its implications may be far-reaching:

• KPIs and performance reporting may need reassessment
• Chart of accounts and financial systems may require updates
• Internal and external communication of financial performance may change
• Comparative information will need restatement

Early assessment is essential to avoid last-minute implementation challenges.

How Organizations Can Prepare Now

To ensure a smooth transition, organizations should:

• Perform an early impact assessment
• Identify existing management performance measures
• Review income and expense classifications
• Engage finance, IT, and senior management early
• Train finance teams on the new requirements

Final Overview

IFRS 18 marks an important advancement in financial reporting by improving transparency and enhancing comparability across financial statements. Although its implementation may require careful planning and additional effort, the outcome will be more structured and meaningful financial information that better reflects an entity’s financial performance and operating results. This improvement will support users of financial statements in making more informed and reliable decisions.

Organizations that begin preparing for IFRS 18 at an early stage will be better positioned to achieve timely compliance and manage the transition effectively. Early preparation also provides an opportunity to enhance internal reporting processes, strengthen consistency, and improve the overall quality and credibility of financial reporting.