The International Accounting Standards Board (IASB) has taken a major step in revamping how entities communicate financial performance. The result?
IFRS 18: Presentation and Disclosure in Financial Statements, effective for reporting periods beginning on or after 1 January 2027.
While it doesn’t change how profits are measured, it fundamentally reshapes the structure and presentation of financial statements; especially the statement of profit or loss.
Who does this apply to?
IFRS 18 applies to entities reporting under full IFRS. This includes:
- Listed entities
- Large private companies
- Entities with international operations
IFRS for SMEs is not affected. These companies will continue using the existing SME framework. If you’re unsure whether you apply full IFRS or IFRS for SMEs, now is the time to clarify, as this has major implications for your year-end planning and system updates.
Key Pillars of IFRS 18
- New Income Statement Categories
Entities must classify all income and expenses into:
- Operating
- Investing
- Financing
- Income Tax
- Discontinued Operations
This is a shift from the more flexible structure under IAS 1, and it brings comparability to the forefront.
- Mandatory Subtotals
The following new subtotals must appear on the face of the income statement:
- Operating profit
- Profit before financing and income tax
These serve as new anchors for investors and analysts.
- MPMs: Management-Defined Performance Measures
If your company uses measures like:
- Adjusted profit
- EBITDA excluding share-based payments
- Core earnings
… and communicates these publicly (e.g. in earnings releases or investor decks), these now fall under IFRS 18’s MPM disclosure requirement.
You must:
- Clearly define each MPM
- Disclose a reconciliation to the nearest IFRS subtotal
- Present all MPMs in a single audited note
New Income Statement Layout
Revenue
– Cost of sales
= Gross profit
– Operating expenses (e.g. selling, admin, R&D)
= Operating profit
+ Income from associates and JVs
+ Investment income
= Profit before financing and income taxes
– Finance costs (interest on borrowings, pensions)
= Profit before tax
– Income tax
= Profit from continuing operations
± Results of discontinued operations
= Net profit
Three MPM Examples in Practice
| MPM Name | Description | Reconciled to |
| Adjusted EBITDA | EBITDA excluding restructuring & share-based payments | Operating profit |
| Core Operating Income | Excludes FX and gains on disposals | Operating profit |
| Underlying Net Profit | Excludes fair value gains on financial instruments | Profit from continuing operations |
Implementation Checklist
✅ Map your income statement to the new structure
✅ Review and catalogue any MPMs in use
✅ Update financial reporting systems to support new subtotals
✅ Educate finance teams on new classifications
✅ Speak to your accountant and auditors early
IFRS 18 doesn’t change “what” you report, but it changes “how” you report it. This is a shift in the language of finance that will impact reporting, systems, and investor messaging alike.
Written by: Vidyanth Bhola CEO of VHA Accounting Solutions
