IFRS 18 Presentation and Disclosure in Financial Statements

 

Overview of IFRS 18

In April 2024, the International Accounting Standards Board (IASB) issued IFRS 18 Presentation and Disclosure in Financial Statements (IFRS 18), replacing IAS 1 Presentation of Financial Statements. This new standard also introduces consequential amendments to IAS 7 Statement of Cash Flows and IAS 8 Basis of Preparation of Financial Statements, formerly “Accounting Policies, Changes in Accounting Estimates and Errors”.

IFRS 18 is a significant development in financial reporting, designed to enhance consistency and comparability, specifically in the statement of profit or loss. It responds to longstanding stakeholder concerns regarding the lack of detailed guidance in IFRS on the classification of income and expenses in the statement of profit or loss.

The IFRS 18 standard is effective for annual reporting periods beginning on or after 1 January 2027, with retrospective application required. For entities with a calendar year-end, this means the 2026 financial year will serve as the comparative period.

IFRS 18 has not yet been endorsed in the UK, but it is highly likely that it will be endorsed before the effective date.
 

Key Changes Introduced by IFRS 18

Classification of income and expenses in the statement of profit or loss

All income and expenses should be classified into one of the five following categories:

  • Investing 
  • Financing 
  • Operating 
  • Income taxes 
  • Discontinued operations 

The contents of these categories do not coincide with those of the similarly named existing categories in the statement of cash flows. Entities will need to perform a detailed assessment of income and expenses to determine the appropriate classification with reference to the specific definitions in IFRS 18. Our technical guidance on IFRS 18 shows examples of the new presentation under IFRS 18.
 

Principles of aggregation and disaggregation

A new set of principles has been introduced on how assets, liabilities, equity, income, expenses, and cash flows should be aggregated and disaggregated on the face of the primary financial statements and in the notes.
 

Mandatory totals and subtotals in the statement of profit or loss

The use of totals and sub-totals, including new mandatory ones, is more strictly prescribed in IFRS 18. These sub-totals build on and distinguish between the new categories of income and expenses. For example, all entities are required to present ‘operating profit’ in the statement of profit or loss, which is the total of all income and expenses classified in the operating category.
 

Disclosure of management-defined performance measures (MPMs)

Entities must disclose MPMs in their IFRS financial statements. MPMs are subtotals of income and expenses that are:

  • Used in public communications outside the financial statements 
  • Used to communicate management’s view of the financial performance of the entity as a whole 
  • Not required to be presented or disclosed by IFRS 

An example includes “adjusted profit,” which may exclude items such as share-based payments or goodwill impairments. Entities must provide reconciliations of these MPMs to IFRS-defined measures.
 

Consequential amendments to IAS 7

For entities using the indirect method, the statement of cash flows will now typically begin with operating profit or loss, rather than total profit or loss. IFRS 18 also removes classification options for interest and dividend cash flows, promoting greater consistency.
 

Actions to take on IFRS 18 in 2026

The impact of IFRS 18 should not be underestimated. Given the requirement for retrospective application, entities must begin preparing in 2026 to ensure readiness for adoption in 2027.

Key preparatory actions include:

Undertake an impact assessment to understand how the presentation of the financial statements will change, in particular the statement of profit or loss and the statement of cash flows. In addition, consider how you will identify MPMs. 

Provide training for your finance team on the requirements of IFRS 18 and other consequential amendments. 

Consider any potential system changes that may be required to tag and categorise income and expenses into the appropriate IFRS 18 category. Consider the impact on the consolidation process, if relevant, given that income and expenses may be classified differently in the consolidated financial statements and the subsidiaries' stand-alone financial statements. 

Identify MPMs and consider system and process changes required to bring MPM reporting into the financial reporting process.  

Engage with auditors early to discuss impact including transition plans, documentation requirements and timing. 

Further Resources and Support

You can access more information and advice on IFRS 18 through corporate reporting webinars and our technical guidance document. For a conversation about how we can help with the adoption of IFRS 18, please contact Pete Acloque, Audit Partner at BDO.