9 Mar 26
After more than two decades with IAS 1 at the core of IFRS financial reporting, the International Accounting Standards Board (IASB) has introduced a significant update.
IFRS 18: Presentation and Disclosure in Financial Statements becomes effective for annual reporting periods beginning on or after 1 January 2027, with earlier adoption permitted. While 2027 may seem distant, the requirement to restate comparatives means the impact will be felt sooner than many expect.
IFRS 18 does not change how companies measure profit. Instead, it changes how they present and explain performance, and that shift could materially affect how performance is interpreted.
IFRS 18 replaces IAS 1 Presentation of Financial Statements, which has formed the foundation of IFRS financial reporting since 2001.
When developing IFRS 18, the IASB primarily focused on improving the structure and transparency of the statement of profit or loss. Some requirements from IAS 1 have been retained within IFRS 18, while others have been moved to IAS 8 Basis of Preparation of Financial Statements and IFRS 7 Financial Instruments: Disclosures.
The aim is not to rewrite financial reporting, but to improve clarity and consistency.
IFRS 18 introduces a more structured format for the income statement. Income and expenses will now be categorised into defined sections:
Operating
Investing
Financing
Income taxes
Discontinued operations
Income and expenses must be classified within these categories based on their nature. For some entities, particularly those with significant investment income or financing arrangements, this may alter how certain items are presented compared with current practice.
Entities will be required to present two new mandatory subtotals, including operating profit and profit before financing and income taxes. This change is designed to improve comparability between entities and provide clearer insight into operational performance.
Many organisations use alternative performance measures in investor communications, presentations and annual reports. Now, IFRS 18 has introduced specific disclosure requirements for management-defined performance measures. These are subtotals of income and expenses not specified by IFRS but used in public communications to explain financial performance.
Entities will need to provide greater transparency around how these measures are calculated and reconciled to IFRS figures.
The standard introduces clearer guidance on how items should be grouped or separated within financial statements. The objective is to ensure that material information is not obscured and that financial statements present a faithful representation of performance.
This may require revisiting chart of accounts structures and disclosure practices.
IFRS 18 includes consequential amendments to IAS 7 Statement of Cash Flows.
Under the indirect method, the reconciliation of operating cash flows will now begin with operating profit, rather than profit before income taxes. In addition, dividends paid must be presented as financing activities, and interest paid will generally be classified within financing activities.
While these changes do not affect cash generation itself, they may influence presentation, trend analysis and stakeholder interpretation.
Although IFRS 18 does not fundamentally alter recognition and measurement principles, it represents the most significant overhaul of financial statement presentation in over 20 years.
It may affect:
The structure of the income statement
The presentation of performance metrics
Disclosure requirements
Internal reporting processes
Investor and stakeholder communications
Companies that rely heavily on alternative performance measures may see the most noticeable impact. In practice, this means preparation should begin well before the effective date.
IFRS 18 is effective for periods beginning on or after 1 January 2027, with earlier adoption permitted. Comparative information will be required, meaning businesses may need to prepare restated figures for prior periods at the point of adoption.
Early preparation will help organisations:
Assess the impact on KPIs and covenant calculations
Review the presentation of internal performance metrics
Ensure systems can capture the required level of detail
Communicate changes clearly to stakeholders
Our audit and accounting teams are already reviewing the implications of IFRS 18 with clients to ensure readiness ahead of the effective date.
If you would like to discuss how IFRS 18 may affect your financial statements or reporting processes, please get in touch with a member of our team.
