IFRS 18, effective January 1, 2027, replaces IAS 1 and mandates a more structured income statement, standardized subtotals (operating profit), and, for the first time, discloses Management-Defined Performance Measures (MPMs) in the audited notes. It requires grouping income/expenses into operating, investing, and financing categories, and enhances disaggregation, requiring more detailed expense breakdowns.
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.
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.
IFRS 18 introduces defined and complementary roles for the primary financial statements and the notes to guide entities when making decisions about where to provide material information. Enhanced principles of aggregation vs disaggregation based on shared vs non-shared characteristics.
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.
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).
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.
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.
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).
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.
The four core financial statements are the Balance Sheet (snapshot of assets, liabilities, equity), the Income Statement (revenues, expenses, profit over time), the Cash Flow Statement (cash inflows/outflows over time), and the Statement of Shareholders' Equity (changes in owner investment over time), all crucial for understanding a company's financial health.
There are three types of disclosure.
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.
5 accounting policies are, Revenue Recognition, determines when income should be recorded; Asset valuation, specifies how to value assets; Expense recognition, outlines how expenses should be recorded; Depreciation methods, allocates the cost of an asset over its useful life; and Inventory valuation, includes FIFO and ...
The four pillars of IFRS S1 and S2 are governance, strategy, risk management and metrics and targets.
Income and expenses are to be categorised into the following five categories: operating, investing, financing, tax and discontinued operations. 4. IFRS 18 requires entities to present various specified totals and sub-totals following this categorisation.
IFRS 18 aims to improve financial reporting by: requiring an entity to present two new defined subtotals in the statement of profit or loss—operating profit and profit before financing and income taxes.
IFRS 18 introduces two new required subtotals on the face of the income statement: “Operating profit” and “Profit or loss before financing and income tax”. These new subtotals will enhance the income statement's consistency and improve comparability of the entity's financial performance.
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.
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.
IFRS reports DTAs and deferred tax liabilities only as long term, while U.S. GAAP would distinguish short and long term. Under U.S. GAAP, if a parent/subsidiary relationship exists, then the company must prepare consolidated statements.
When will the changes come into effect? The FRC has decided to apply the new regime for financial years beginning on or after 1 January 2015, which will require 2014 comparatives to be restated. What is FRS 102? FRS 102 will replace almost all current UK accounting standards from 2015.