What Is IFRS 18?
The International Accounting Standards Board (IASB) issued IFRS 18 — Presentation and Disclosure in Financial Statements — which replaces IAS 1 and becomes effective for annual reporting periods beginning on or after 1 January 2027. Early adoption is permitted.
The Most Significant Changes
Three New Income Statement Categories
IFRS 18 requires companies to present income and expenses in three clearly defined categories within the statement of profit or loss:
- Operating — results from the main business activities
- Investing — returns from assets not integral to main operations
- Financing — costs of financing activities
This replaces the flexible, entity-defined approach under IAS 1 and will significantly affect how companies with diverse revenue streams present their results.
Two New Mandatory Subtotals
All entities must now present:
- Operating profit or loss — income and expenses from operating category
- Profit or loss before financing and income tax
These subtotals cannot be omitted or renamed, giving analysts and investors consistent comparison points across entities.
Management Performance Measures (MPMs)
If an entity communicates non-IFRS performance metrics (such as adjusted EBITDA or headline earnings) in public communications, IFRS 18 requires those metrics to be explained and reconciled within the financial statements.
Impact Assessment Checklist
- [ ] Map current income statement line items to the three IFRS 18 categories
- [ ] Identify any MPMs currently communicated to investors or lenders
- [ ] Assess impact on banking covenants tied to existing financial metrics
- [ ] Update reporting systems and chart of accounts
- [ ] Plan comparative period restatement (2026 will need restating)
- [ ] Educate the board and audit committee on presentation changes
How Gemal Can Help
Our audit and advisory team is already assisting clients with IFRS 18 readiness assessments. The earlier you begin, the more time you have to resolve system and covenant issues before the mandatory transition date.