IFRS 18, Presentation and Disclosure in Financial Statements, is a new standard effective January 1, 2027, replacing IAS 1. Key changes include mandatory operating, investing, and financing income statement categories, new subtotals (operating profit, pre-financing profit/tax), required disclosures for management-defined performance measures (MPMs), and enhanced aggregation rules.
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 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.
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 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.
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.
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.
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 will impact all companies across different industries. Although companies' net profit will remain unchanged, many will see changes to the structure of their income statement. For some, the changes will be significant, depending on their current presentation practice under IFRS® Accounting Standards.
For related party transactions, disclosure is required of the nature of the relationship and with sufficient information to enable an understanding of the potential effect on the transactions. There is a partial exemption for government-related entities.
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.
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 mandates that companies classify and present operating expenses by nature and/ or function directly on the face of the income statement, with additional disclosures (by nature) for those items presented by function on the face of the income statement.
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.
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 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).
China, India, and Indonesia do not follow IFRS accounting standards but have similar standards, while Japan allows companies to follow IFRS standards if they choose.
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.
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 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.
The four pillars of IFRS S1 and S2 are governance, strategy, risk management and metrics and targets.
Accounting changes are classified as a change in accounting principle, a change in accounting estimate, and a change in reporting entity.
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 9 replaced IAS 39 in January 2018 because it was too complex, inconsistent, and impractical in a modern financial world. Accountants, regulators, and financial institutions often call IAS 39 one of the most confusing standards ever written.