IFRS 18: Be Prepared for the New Presentation Standard

IFRS 18 is the first significant change to the presentation of financial statements in over twenty years. It replaces IAS 1 Presentation of Financial Statements and, for some companies, it will change the way the statement of profit or loss looks.

It is extensive, which is not necessarily a bad thing, because it brings far more clarity than IAS 1. However, companies that are affected need to get ready now. IFRS 18 applies from 1 January 2027, but it applies retrospectively, which means the comparatives for the year starting 1 January 2026 must be presented in line with the new requirements. If you do not already track your income and expenses in the breakdowns IFRS 18 needs, it is time to look at your chart of accounts.

1. Introduction to IFRS 18

Objective of IFRS 18

IFRS 18 sets out the requirements for the presentation and disclosure of information in general purpose financial statements. The aim is to help ensure that financial statements provide relevant information that faithfully represents an entity’s assets, liabilities, equity, income and expenses.

How to apply IFRS 18

IFRS 18 is applied retrospectively, with the comparative period restated. If you apply IFRS 18 from 2027, the numbers for 2026 must also be presented under the new rules. In the first year, a reconciliation is also required for each line item in the statement of profit or loss, from the amounts previously presented under IAS 1 to the restated amounts. Earlier application is permitted.

2. General requirements for financial statements

Objective of financial statements

The objective of financial statements is to provide financial information about a reporting entity’s assets, liabilities, equity, income and expenses, so that users can assess the prospects for future net cash inflows to the entity and management’s stewardship of the entity’s economic resources.

A complete set of financial statements

A complete set of financial statements comprises:

• a statement (or statements) of financial performance for the reporting period;
• a statement of financial position as at the end of the reporting period;
• a statement of changes in equity for the reporting period;
• a statement of cash flows for the reporting period;
• notes for the reporting period;
• comparative information for the preceding period; and
• a statement of financial position as at the beginning of the preceding period, when required (for example, when a new accounting policy is applied retrospectively or there is a material retrospective restatement).

The statement of financial performance can be presented either as a single statement of profit or loss and other comprehensive income, in two sections, or as two separate statements.

Identification of financial statements

Each financial statement must be clearly identified, with:

• the name of the reporting entity, and any change from the preceding period;
• whether the statements are for a group or a single entity;
• the end of the reporting period or the period covered;
• the presentation currency; and
• the level of rounding used.

IFRS 18 then sets out the main principles, including frequency of reporting, consistency of presentation, comparative information, and aggregation, disaggregation and offsetting.

Aggregation and disaggregation

Items are aggregated when they share characteristics and disaggregated when the resulting information is material. IFRS 18 also restricts the use of vague labels such as “other”, so large balances can no longer sit in a single unexplained line.

3. The statement of profit or loss

This is where IFRS 18 makes its biggest changes, by introducing categories of income and expenses and new subtotals.

Five categories

All income and expenses in the statement of profit or loss are classified into one of five categories:

1. Operating: the default category. Everything not classified elsewhere goes here.
2. Investing: for example, returns on investments and rental income from investment property.
3. Financing: income and expenses on liabilities from raising finance (such as interest on bonds and loans) and certain other liabilities (such as unwinding the discount on long-term provisions).
4. Income taxes
5. Discontinued operations

These categories are not the same as the categories in the statement of cash flows under IAS 7, although they look similar.

An entity with a specified main business activity classifies some items differently:

• if its main business activity is investing in assets, income and expenses from those assets belong in the operating category, not investing;
• if its main business activity is providing finance to customers, income and expenses from that activity belong in the operating category, not financing.

Totals and subtotals

IFRS 18 introduces two new required subtotals, alongside the total for profit or loss:

• Operating profit or loss: all income and expenses in the operating category.
• Profit or loss before financing and income taxes: operating profit or loss plus all income and expenses in the investing category.

Many companies already presented similar subtotals. IFRS 18 now specifies exactly how they are calculated, which makes them comparable between companies.

Line items to present

As a minimum, the statement of profit or loss presents:

• revenue, with interest revenue and insurance revenue shown separately;
• operating expenses, by nature or by function;
• share of the profit or loss of associates and joint ventures accounted for using the equity method;
• income tax expense or income;
• a single amount for discontinued operations under IFRS 5; and
• the amounts required by IFRS 9 Financial Instruments and IFRS 17 Insurance Contracts.

Profit or loss for the period is also allocated between non-controlling interests and owners of the parent. If you present expenses by function, IFRS 18 requires additional information about expenses by nature, such as depreciation, amortisation, employee benefits and impairment, in a single note.

4. Management-defined performance measures

Many companies talk about “adjusted” profit figures in results announcements and investor presentations. IFRS 18 brings these management-defined performance measures into the audited financial statements. Where a company uses such a measure in its public communications, it must disclose it in a single note, explain why it reflects management’s view and how it is calculated, and reconcile it to the most directly comparable subtotal specified by IFRS, including the tax and non-controlling interest effect of each reconciling item.

5. Statement presenting comprehensive income

The statement presenting comprehensive income shows:

• profit or loss, carried from the statement of profit or loss;
• other comprehensive income, split between items that will be reclassified to profit or loss when specific conditions are met and items that will not be reclassified; and
• comprehensive income, being the total of profit or loss and other comprehensive income.

As with profit or loss, comprehensive income is allocated between non-controlling interests and owners of the parent.

6. Statement of financial position

IFRS 18 changes little about the statement of financial position (balance sheet) compared with IAS 1. A classified statement of financial position is presented, with current and non-current assets and liabilities shown separately. As a minimum, the following line items are presented:

Assets	Equity and liabilities
Property, plant and equipment	Issued capital and reserves attributable to owners of the parent
Investment property	Non-controlling interests
Intangible assets	Financial liabilities
Financial assets	Provisions
Investments accounted for using the equity method	Trade and other payables
Biological assets	Liabilities included in disposal groups under IFRS 5
Inventories	Current tax liabilities
Trade and other receivables	Deferred tax liabilities
Cash and cash equivalents
Assets held for sale under IFRS 5
Current tax assets
Deferred tax assets

Further subclassifications, such as the classes of property, plant and equipment, are disclosed either in the statement itself or in the notes. Information about share capital and reserves is also required in the statement of financial position, the statement of changes in equity or the notes. IFRS 18 does not prescribe a single format: several formats are acceptable as long as they meet these requirements.

7. Statement of changes in equity

The requirements for the statement of changes in equity are carried over from IAS 1 largely unchanged. As a minimum, it shows:

• total comprehensive income for the period, split between owners of the parent and non-controlling interests;
• the effect of retrospective application or restatement on each component of equity, if applicable; and
• a reconciliation of the opening and closing carrying amount of each component of equity, showing separately changes from profit or loss, other comprehensive income and transactions with owners (contributions, distributions and changes in ownership).

Dividends recognised as distributions, and the related amount per share, are presented in the statement of changes in equity or in the notes.

8. Notes to the financial statements

The notes accompany the primary financial statements and give the information the numbers alone cannot. As a minimum, they contain:

• the basis of preparation of the financial statements;
• the accounting policies used;
• information required by IFRS that is not presented in the primary financial statements; and
• other information that is not in the primary financial statements but is relevant to understanding them, such as significant events, trends or contracts that may affect the business.

9. The statement of cash flows

IFRS 18 also amends IAS 7. Under the indirect method, operating cash flows now start from operating profit or loss. For most companies, interest and dividends received are classified as investing cash flows, and interest and dividends paid as financing cash flows, removing the choice that existed before.

How to prepare

• Map your income and expenses to the five categories and check your chart of accounts can produce them.
• Identify any adjusted measures you use publicly, such as adjusted EBITDA, and plan the reconciliation note.
• Review “other” balances and decide what needs to be disaggregated.
• Restate 2026 on the new basis in good time, rather than at year end 2027.
• Talk to your lenders and auditors early if covenants or bonuses are linked to profit subtotals that will change.

Frequently asked questions

When does IFRS 18 take effect?

For annual reporting periods beginning on or after 1 January 2027. Earlier application is permitted.

Which standard does IFRS 18 replace?

IAS 1 Presentation of Financial Statements.

Do I need to restate my 2026 figures?

Yes. IFRS 18 applies retrospectively, so the comparative period is restated. For a company with a December year end, that is the year starting 1 January 2026.

What are the new subtotals in profit or loss?

Operating profit or loss, and profit or loss before financing and income taxes. They sit alongside the total for profit or loss.

Does IFRS 18 change how much tax or profit I report?

No. IFRS 18 is about presentation and disclosure. It changes how income and expenses are grouped and labelled, not how they are measured.

Get help from Alif

Alif is an accounting and tax firm in Dubai. Our accounting team can map your chart of accounts to the IFRS 18 categories, restate your comparatives and prepare the new disclosures. Book a free consultation to discuss your position.

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