IFRS 18, effective January 1, 2027, introduces fundamental changes to financial statement presentation, primarily focusing on a structured income statement with mandatory subtotals (operating, investing, financing), mandatory disclosure of management-defined performance measures (MPMs), and enhanced principles for aggregation and disaggregation. It replaces IAS 1 and aims to improve comparability and transparency in performance reporting.
IFRS 18 replaces IAS 1 and responds to investors' demand for better information about companies' financial performance. New requirements include: new categories and subtotals in the statement of profit or loss, disclosure of MPMs and enhanced requirements for grouping information.
Main Requirements in IFRS 18
requires presentation of two new defined subtotals in the income statement—operating profit and profit before financing and income taxes—which are expected to improve comparability among companies by creating a consistent structure for the income statement.
In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements. IFRS 18 sets out overall requirements for the presentation and disclosure in financial statements. The IASB did not reconsider all aspects of IAS 1 when developing IFRS 18, but instead focused on the statement of profit or loss.
IFRS 18 also introduces two new defined subtotals: operating profit or loss and profit before financing and income taxes. They provide clearer insights into an entity's core business performance by distinctly separating them from investing and financing activities.
To address this and enhance transparency, IFRS 18 introduces a mandatory structure for the statement of profit or loss, under which expenses and income must be classified into five categories. This aligns the structure of the statement of profit or loss more closely with that of the statement of cash flows.
IFRS 18 sets out overall requirements for the presentation and disclosure in financial statements. It requires an entity to present a complete set of financial statements at least annually, with comparative amounts for the preceding year (including comparative amounts in the notes).
In the second half of 2025, the International Accounting Standards Board (IASB) amended IFRS 19 to provide additional disclosure relief for subsidiaries without public accountability. Amendments to IAS 21 were also issued to address certain foreign exchange translations in hyperinflationary environments.
One of the most immediate challenges is the mandatory restructuring of the income statement. IFRS 18 requires businesses to present income and expenses in three clearly defined categories: operating, investing, and financing, along with a required subtotal for operating profit.
IFRS will require expenses to be classified into categories such as operating, investing, and financing while US GAAP will not impose such classifications. Both require disclosure of natural expenses in the footnotes (if not on the face of the financial statements).
One of the key features of IFRS 18 is to require companies to classify all items of income and expenses into one of the five categories of operating, investing, financing, income taxes and discontinued operations.
Here's why these five financial documents are essential to your small business. The five key documents include your profit and loss statement, balance sheet, cash-flow statement, tax return, and aging reports.
The four pillars of IFRS S1 and S2 are governance, strategy, risk management and metrics and targets.
IFRS 18 requires entities to classify income and expenses into five categories, three of which are new – i.e. operating, investing and financing – and the income tax and discontinued operation categories. The new standard sets out detailed requirements for classifying income and expenses into each category.
In April 2024, the IASB issued a new IFRS viz. IFRS 18, Presentation and Disclosure in Financial Statements to improve how companies communicate in their financial statements, with a focus on information about financial performance in the profit or loss.
The primary objective of IFRS 18 is to establish comprehensive requirements for the presentation and disclosure of financial information in general-purpose financial statements.
A statement of changes in equity reflects all changes in equity between the beginning and the end of the reporting period reflecting the increase or decrease in net assets in the period, including those arising from transactions with owners in their capacity as owners (that is, owner changes in equity).
IFRS 18 introduces the concept of management-defined performance measures ('MPMs'), defined as subtotals of income and expenses that an entity uses in public communications outside financial statements, to communicate to users management's view of an aspect of the financial performance of the entity as a whole.
IFRS 18 replaces IAS 1 and becomes effective for annual reporting periods beginning on or after 1 January 2027, subject to endorsement by the EU, with earlier application permitted.
Accounting changes are classified as a change in accounting principle, a change in accounting estimate, and a change in reporting entity.
In April 2024, the International Accounting Standards Board (IASB) issued IFRS 18 – Presentation and Disclosure in Financial Statements. IFRS 18 replaces IAS 1 – Presentation of Financial Statements.
IFRS 18 is expected to improve the quality of financial reporting by defining categories and subtotals in the statement of profit or loss, requiring the disclosure of MPMs, and introducing enhanced requirements for grouping of information in the primary financial statements and the notes.
IFRS 18 and the consequential amendments to other IFRS accounting standards, which must be adopted at the same time, are effective for periods beginning on or after 1 January 2027 and apply fully retrospectively.
Developed in response to growing investor demand for more relevant and comparable data, IFRS 18 aims to provide consistency in presentation of the income statement alongside more disaggregated information.