The most significant overhaul of financial statement presentation in a generation takes effect in 2027 but for December year-ends, the numbers that will be restated are the ones being closed today.
When the International Accounting Standards Board (IASB) issued IFRS 18, Presentation and Disclosure in Financial Statements, in April 2024, it described it as the most consequential change to the face of the financial statements since IAS 1. The characterisation is fair. IFRS 18 does not rewrite how assets, liabilities, income or expenses are measured, recognition and measurement continue to live in the other standards, but it fundamentally reshapes how performance is presented and what management must disclose about the measures it chooses to emphasise. It replaces IAS 1 in full and applies to every entity reporting under IFRS, in every sector.
What actually changes
The reform rests on three pillars.
- A structured statement of profit or loss. Income and expenses must now be classified into defined categories which are operating, investing and financing (alongside income taxes and discontinued operations) and two new subtotals become mandatory: operating profit and profit before financing and income taxes. For the first time, the income statement will carry a consistent skeleton across companies, which is precisely the comparability investors have long been asking for.
- Management-defined performance measures (MPMs). The “adjusted” numbers that have traditionally lived in investor presentations and the front half of the annual report – adjusted operating profit, underlying EBITDA and the like – are pulled into the audited financial statements. Where a subtotal of income and expenses is used in public communications to convey management’s view of performance, it must be disclosed in a single note, reconciled to the most comparable IFRS-defined subtotal, including the tax and non-controlling-interest effect of each reconciling item. Non-GAAP measures, in short, are coming inside the audit boundary.
- Enhanced aggregation and disaggregation. IFRS 18 introduces explicit principles for how items are grouped and labelled, targeting the vague “other” line and requiring information to be organised by shared characteristics. Preparers should expect more granular, better-explained primary statements and notes.
There are consequential knock-on effects too – notably to the statement of cash flows, where operating profit becomes the single starting point for the indirect method and the classification of interest and dividends is tightened. A companion standard, IFRS 19, offers reduced disclosure for eligible subsidiaries without public accountability and shares the same effective date.
The timeline trap
IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, with early adoption permitted and subject to local endorsement in jurisdictions that require it. Read quickly, “2027” sounds comfortably distant. It is not.
The standard must be applied retrospectively. For an entity with a 31 December year-end, the first IFRS 18 financial statements will be those for the year ending 31 December 2027 and they must present 2026 as a restated comparative period. The transition date is therefore 1 January 2026. In other words, the financial year that finance teams are living in right now is the comparative year. The figures being captured, classified and closed during the current cycle, including the interim and year-end numbers that are still unaudited, are the very figures that will reappear, represented under IFRS 18, alongside the 2027 results.
This is the point most easily missed. A company that waits until 2027 to “implement” will find itself reconstructing a full prior year of classifications – operating versus investing versus financing, MPM identification and reconciliation, and revised disaggregation – after the fact, from records that were never built to support it. The cost, risk and audit friction of doing this retrospectively are materially higher than capturing it as the year unfolds.
How prepared are companies, really?
Candidly, less than the calendar demands. The experience of preparers across the profession points to a consistent picture: IFRS 18 has been competing for attention with sustainability reporting, international tax reform and ordinary operational pressure, and many entities have not moved much beyond awareness. The recurring pain points are now well documented – classifying transactions into the new categories (particularly for entities whose main business activity is investing or financing), identifying which “adjusted” measures meet the MPM definition, sourcing data at the granularity the standard expects, and reconfiguring consolidation and reporting systems to produce the new structure on a repeatable, auditable basis.
What to do in the time that remains
- Run an impact assessment now – map your current statement of profit or loss to the IFRS 18 categories and subtotals, and identify your MPMs.
- Settle your classification policies – especially around interest, dividends and items with investing or financing characteristics – and document the judgements.
- Capture the current (comparative) year at the required granularity rather than retrofitting it later; adjust the chart of accounts and reporting packs accordingly.
- Engage your auditors early on classification judgements and MPM reconciliations, while positions can still be shaped.
- Brief the audit committee and investor-relations team – the MPM disclosures change what gets audited and how performance is narrated externally.
IFRS 18 is not a measurement change, so it is tempting to treat it as a presentation tidy-up to be handled near the deadline. The retrospective requirement makes that a mistake. For the great majority of entities, the comparative year is the current year, and the quality of the eventual transition will be decided by the discipline applied to today’s unaudited numbers. The organisations that come through cleanly will be those that treat 2026, not 2027, as the year IFRS 18 began.