IFRS 18: What changes with presentation and disclosure in financial statements

IFRS 18 represents the most significant change to the presentation and disclosure of financial statements since IAS 1 was issued. It replaces IAS 1 Presentation of Financial Statements and is effective for annual reporting periods beginning on or after January 1, 2027, with early adoption permitted.

This article walks through the key changes, what they mean for preparers, and how to assess the impact on your financial statements.

Why IFRS 18 was introduced

The IASB identified several persistent issues with IAS 1:

• Inconsistent classification of income and expenses in the statement of profit or loss
• Poorly defined subtotals, particularly “operating profit” which varied significantly between entities
• Limited disaggregation requirements, leading to lump-sum line items that obscured meaningful information
• Management-defined performance measures (MPMs) appearing outside the financial statements without reconciliation

The IASB’s objective was not to overhaul financial reporting, but to bring structure and comparability to the face of the financial statements and their notes.

Key changes at a glance

Area	IAS 1 (current)	IFRS 18 (new)
P&L classification	No mandatory categories	Three categories: operating, investing, financing
Operating profit	Not defined	Mandatory subtotal defined consistently
MPMs	No specific requirements	Requires reconciliation and disclosure in notes
Disaggregation	Guidance only	Enhanced requirements for operating expenses

New structure of the statement of profit or loss

IFRS 18 introduces three required categories:

1. Operating — income and expenses from an entity’s main business activities. This is the residual category and will include most items.
2. Investing — income and expenses from investments, including associates and joint ventures accounted for using the equity method.
3. Financing — income and expenses from financing activities, including interest expense on borrowings and lease liabilities.

The standard also requires a defined subtotal for operating profit or loss, which must be presented before investing and financing categories. This replaces the current practice where entities defined operating profit inconsistently.

Management-defined performance measures (MPMs)

One of the most significant changes is the formal recognition of MPMs. IFRS 18 defines an MPM as:

A subtotal of income and expenses that an entity uses in public communications outside the financial statements that is not listed or described as a subtotal required by IFRS Accounting Standards.

— IFRS 18, Appendix A

For each MPM, entities must now disclose:

• A reconciliation from the MPM to the most directly comparable IFRS subtotal
• The reason the MPM conveys management’s view of performance
• A description of how the MPM is calculated
• Changes in the MPM from the prior period

Disaggregation of operating expenses

IFRS 18 introduces enhanced disaggregation requirements. Entities must analyze operating expenses by nature or function, with a requirement to disaggregate items that are individually significant. This means you can no longer present a single line “other expenses” without further breakdown if the amount is material.

The standard also requires that if an entity presents expenses by function, it must also disclose the nature of expenses within each function at a minimum level of disaggregation. For example, “cost of sales” would need to be broken down into materials, labor, overhead, etc.

In practice, this will look something like:

Cost of sales:
  Raw materials consumed        12,400
  Employee benefits              8,200
  Depreciation                   3,100
  Other                          1,800
  Total cost of sales           25,500

What preparers should do now

With the effective date of January 1, 2027, there is limited time to prepare. We recommend the following roadmap:

1. Impact assessment — Map your current P&L to the three new categories and assess how your operating profit definition changes.
2. MPM identification — Inventory all performance measures used in investor presentations, earnings releases, and management reports.
3. System readiness — Ensure your ERP or consolidation system can capture the new classification requirements.
4. Comparative data — Plan for restatement of comparatives under IFRS 18. This is required and will be the most time-intensive workstream.
5. Dry run — Prepare a complete IFRS 18-compliant financial statement set before the mandatory effective date.

Final thoughts

IFRS 18 is a welcome improvement that brings structure and comparability to financial statement presentation. While the implementation effort is significant, the result should be financial statements that are more useful to investors and other stakeholders.

For preparers, the key is to start early. The classification decisions you make now will have knock-on effects on how investors perceive your performance. Engage your auditors early, model the impact, and communicate changes to stakeholders well ahead of the effective date.

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Disclaimer: This article is for informational purposes only and does not constitute professional accounting advice. Consult your auditors or accounting advisors for entity-specific guidance.