In April 2024 the International Accounting Standards Board issued IFRS 18 Presentation and Disclosure in Financial Statements, the most significant change to the structure of IFRS financial statements in more than two decades. The standard replaces IAS 1 and applies to annual reporting periods beginning on or after 1 January 2027.
That date can look comfortably distant, but it is not. IFRS 18 is applied retrospectively, which means companies reporting on a calendar-year basis will need restated 2026 comparatives. For many groups, the year that is now drawing to a close is the first year whose numbers must be capable of being presented under the new rules.
A more structured income statement
The headline change is a defined structure for the statement of profit or loss. Income and expenses must be classified into five categories: operating, investing, financing, income taxes and discontinued operations. Two new mandatory subtotals follow from this: operating profit, and profit before financing and income taxes.
Today, 'operating profit' is one of the most widely used and least consistently defined numbers in IFRS reporting. By prescribing what goes into it, the IASB aims to make performance comparable across companies. Entities with specified main business activities, such as banks and insurers, follow adjusted classification rules, so the same line item may land in a different category depending on the business model.
Management-defined performance measures come into the audited accounts
Many companies communicate results using adjusted measures such as 'underlying EBITDA' or 'adjusted operating profit'. Under IFRS 18, where such subtotals are used in public communications outside the financial statements and reflect management's view of performance, they become management-defined performance measures (MPMs).
MPMs must be disclosed in a single note, with an explanation of why each measure is useful, how it is calculated and a reconciliation to the most directly comparable IFRS subtotal, including the tax and non-controlling interest effects of each reconciling item. Because that note sits inside the financial statements, it falls within the scope of the statutory audit. Figures that were previously reviewed only for consistency will now be subject to audit evidence requirements.
Aggregation, disaggregation and 'other' line items
IFRS 18 also introduces enhanced principles on grouping information. Items are to be aggregated or disaggregated based on shared characteristics, and large balances labelled simply as 'other' will attract scrutiny. Entities that present expenses by function must disclose specified expenses by nature, such as depreciation, amortisation and employee benefits, in the notes.
For finance teams this is less about new calculations and more about data. Chart-of-account structures, consolidation mappings and reporting packs often do not capture the attributes needed to classify items consistently. Mapping those gaps early avoids manual workarounds during the first reporting cycle.
Where preparation should focus now
A practical readiness plan usually starts with an impact assessment of each income statement line, followed by a review of every performance measure used in investor presentations, results announcements and remuneration schemes. Decisions about which measures to retain as MPMs have consequences beyond the annual report.
Companies should also consider systems changes, the need to capture comparative data for 2026, and communication with investors and lenders about how key subtotals will change. Loan covenants that reference 'operating profit' or EBITDA definitions deserve particular attention.
Conclusion
IFRS 18 does not change how revenue or assets are measured, but it reshapes how performance is presented and brings management's own measures into the audited accounts. Organisations that treat 2026 as a dry-run year will face a far smoother transition than those who begin when the first IFRS 18 statements are due.
