On 9 April 2024, the International Accounting Standards Board (IASB) issued IFRS 18, Presentation and Disclosure in Financial Statements, a new standard that completes a major project on improving the presentation of financial statements. IFRS 18 responds to investors’ concerns about the comparability and transparency of financial performance reporting and is designed to provide more decision-useful information to users of financial statements. It enhances consistency in how entities present operating profit or loss and introduces new disclosure requirements for certain management-defined performance measures, thereby improving comparability between similar entities and increasing transparency.
IFRS 18 will replace International Accounting Standard 1 (IAS 1) and will be effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.
IFRS 18 establishes a clearly defined and standardised structure for presenting financial performance in the statement of profit or loss. By prescribing specific categories and mandatory subtotals, the standard reduces inconsistencies and diversity in how entities present their results. This structured approach enhances the clarity of financial information and enables users of financial statements to more easily understand performance trends and make meaningful comparisons across entities and industries.
Under IFRS 18, all income and expense items must be classified into five categories: operating, investing, financing, income taxes, and discontinued operations. The operating, investing, and financing categories form the core of the new framework. This structured categorisation improves transparency by clearly distinguishing between results arising from core business operations, returns from investments, and financing activities. As a result, users can better assess how different aspects of an entity’s activities contribute to overall financial performance.
- Operating: A residual category covering all income and expenses from the entity’s core business activities, including revenue, cost of goods sold, and administrative expenses.
- Investing: Includes income and expenses related to investments, such as returns from associates, joint ventures, and income-generating properties or assets.
- Financing: Encompasses income and expenses arising from financing activities, such as interest on bank loans and the impact of changes in interest rates.
- Income taxes: Reports all income tax expenses or benefits separately.
- Discontinued operations: Presented as a single line item reflecting the total results of discontinued operations.
The standard requires entities to present specific totals and subtotals in the statement of profit or loss, including operating profit or loss, profit or loss before financing and income taxes, and profit or loss. The introduction of a defined and mandatory operating profit or loss subtotal is a significant change. By providing a consistent definition applicable to all entities, IFRS 18 enhances comparability and ensures that operating performance is measured and presented on a uniform basis.
IFRS 18 introduces specific disclosure requirements for management-defined performance measures, which are often referred to as non-GAAP or alternative performance measures. Entities must disclose these measures in a single note to the financial statements and provide a reconciliation to the most directly comparable subtotal specified by IFRS Accounting Standards. This requirement increases transparency, promotes consistency, and strengthens discipline in the presentation of alternative performance metrics used by management.
Entities may present operating expenses by nature, by function, or using a mixed approach, depending on what best reflects their business model. However, where expenses are presented by function (for example, cost of sales or administrative expenses), IFRS 18 requires additional disclosures of certain expenses by nature. This ensures that users receive more detailed information about the composition of costs and gain better insight into the entity’s cost structure.
IFRS 18 strengthens the principles governing how items are aggregated or disaggregated in the financial statements and related notes. Items must be grouped based on shared characteristics, and material information must not be obscured by excessive aggregation. These enhanced principles apply across all primary financial statements and disclosures, promoting clearer, more structured, and decision-useful reporting.
The introduction of IFRS 18 results in targeted amendments to other IFRS Accounting Standards. For example, International Accounting Standard 7 has been amended to require operating profit or loss to be used as the starting point when reconciling cash flows from operating activities. In addition, previous options for presenting interest and dividends paid and received have been removed, further improving consistency in financial statement presentation.
FRS 18 becomes effective for annual reporting periods beginning on or after 1 January 2027, including interim financial statements. The exact implementation date may also depend on local regulatory requirements in different jurisdictions. Earlier application is permitted, and entities that adopt the standard early must disclose this fact in the notes to the financial statements. When early adopting IFRS 18, entities must also apply the related amendments to other IFRS Accounting Standards.
IFRS 18 requires retrospective application, meaning comparative information must be restated in accordance with the new requirements. In the year of adoption, entities must prepare comparative financial statements under IFRS 18, even if those comparatives were previously presented under IAS.
In addition, entities are required to provide reconciliation disclosures explaining how amounts presented under IAS 1 have been reclassified and restated under IFRS 18. This includes:
- A reconciliation between the statement of profit or loss as previously presented and the revised presentation under IFRS 18;
- Reconciliations for each line item in the statement of financial performance for the most recent comparative period; and
- Similar reconciliation disclosures in interim financial statements during the first year of adoption (where applicable).
The adoption of IFRS 18 will require significant preparation. Companies may need to:
- Redesign the structure of the income statement and statement of cash flows;
- Reassess disclosures in the notes to the financial statements;
- Restate comparative annual and interim information;
- Prepare detailed transition reconciliations; and
- Update internal reporting systems and processes to align with the new classification and subtotal requirements.
Although there is time before IFRS 18 becomes effective, early planning is strongly recommended. The transition process may involve finance, legal, investor relations, and IT teams, and could require changes to internal data collection and reporting systems. Proactive preparation will help ensure a smooth implementation and compliance with the new standard.
1. Impact Assessment and Gap Analysis
Review current financial statement presentation and identify key impacts of IFRS 18, including changes to classification, mandatory subtotals, disclosures, and comparative restatement requirements.
2. Financial Statement Redesign and Technical Guidance
Support the restructuring of the statement of profit or loss in line with the new five-category framework, including implementation of required subtotals and enhanced aggregation and disaggregation principles.
3. System, COA Alignment and Transition Support
Assist with chart of accounts mapping, internal reporting alignment, and system considerations, as well as preparation of transition reconciliations and comparative information restatement.
4. Training and Ongoing Advisory Support
Provide tailored training for finance teams and management, together with practical templates, implementation guidance, and continued technical support throughout the transition period.