IFRS 18

Who will be impacted by the new standard?

All stakeholders in all industries that apply IFRS Accounting Standards will be impacted. The
changes introduced by IFRS 18 will affect how entities present and disclose information in the
financial statements, the information available to investors, and the extent of information subject to
assurance by auditors.

What will be changed?

IFRS 18 introduces significant changes to the presentation of financial statements, with a focus on
the statement of profit or loss. Nonetheless, certain requirements of IAS 1 will be included in IFRS
18 with minimal changes. As the final version of IFRS 18 has not yet been released, the following
overview of key changes from IAS 1 to IFRS 18 is based on the IASB’s tentative decisions and may
differ from the final requirements of IFRS 18.

Categories and subtotals

To enhance consistency and comparability of companies’ financial performance IFRS 18 will require
income and expenses to be classified into five categories in the statement of profit or loss (table
below).
IAS 1 does not require income and expenses to be classified into particular “classes” or “categories”
nor does it mandate the presentation of any subtotals between “revenue” and “profit or loss” in the
statements of profit or loss.

Furthermore, all entities will be required to present two new subtotals:

• Operating profit or loss, which comprises all income and expenses classified in the operating
category; and
• Profit or loss before financing and income tax, which comprises all income and expenses
classified in the operating and investing categories.

Management defined performance measures (MPM)

IFRS 18 will include specific disclosure requirements for MPM to improve the transparency of
measures entities provide and the discipline with which they are prepared. MPM are subtotals of
income and expenses, other than subtotals specified by IFRS Accounting Standards, that an entity (a)
uses in public communications outside financial statements; and (b) uses to communicate to users of
financial statements management’s view of an aspect of the entity’s financial performance. Examples
of MPM include adjusted profit and adjusted Ebitda.
IFRS 18 will require entities to disclose the following information about their MPM in a single note:
• A statement that the MPM provides management’s view.
• An explanation of the MPM calculation and why it provides useful information.
• A reconciliation to the most directly comparable specified subtotal or total, and
• An explanation of any changes to the MPM.

Labelling, aggregation and disaggregation

IFRS 18 will enhance the requirements for labelling, aggregation and disaggregation with the
following key changes:
• Items must be disaggregated if the resulting disaggregated information is material.
• Use the label “other” only if an entity is unable to find a more informative label; and
• Entities that classify expenses by function will be required to disclose the amounts included
in each line item for depreciation, amortization, employee benefits, impairment losses and
write-down of inventories.

Statement of cash flows

There will be consequential amendments to IAS 7 Statement of Cash Flows to improve comparability.
The amendments will include:
• The newly introduced mandatory subtotal, operating profit or loss, will be the starting point
for the indirect method of reporting cash flows from operating activities; and
• The elimination of accounting policy choice to classify interest and dividend cash flows.
Entities will be required to classify their interest and dividend cash flows according to the new
requirements (table below).

… in practice…
Entities may need to adjust accounting systems to appropriately ‘tag’ and to categorise income and
expenses into the new IFRS 18 categories. This process may be complex for groups with diverse
operations (various main business activities) and multiple reporting systems.
Investor relations teams will also need to be aware of these changes, as any new management
performance measures used in public communications must be disclosed and reconciled within the
financial statements.

Effective date
The effective date of IFRS 18 is expected to be for annual periods beginning on or after 1 January
2027.
Comparatives must also be restated because this change must be applied retrospectively. So many
entities need to have adjusted or upgraded systems ready by 1 January 2026 (for December balancing
entities) or 1 July 2026 (for June balancing entities).