Change is coming for financial reporting teams—and it’s arriving in the form of IFRS 18, the new International Financial Reporting Standard focused on presentation and disclosure in financial statements. If you’re involved in preparing, reviewing, or analyzing financial reports, you’ve likely heard the buzz: starting in 2027, IFRS 18 will replace the familiar IAS 1, bringing with it a fresh set of requirements that will reshape how companies communicate their financial performance[1][2][5]. The goal is clear—greater transparency, improved comparability, and more meaningful insights for investors and other stakeholders. But getting there will require thoughtful preparation, updated processes, and, in many cases, a shift in mindset. This guide walks you through what IFRS 18 means, why it matters, and—most importantly—how your team can get ready, step by step, with practical examples and real-world advice.
Understanding IFRS 18: What’s Changing and Why #
Let’s start with the basics. IFRS 18 isn’t about changing how you recognize or measure assets and liabilities—those rules stay put. Instead, it’s all about presentation and disclosure, especially in the income statement (or statement of profit or loss, as it’s formally known)[2][5]. The IASB’s aim is to make financial statements easier to understand and compare, responding to feedback that today’s reports can be inconsistent and hard to interpret across different companies and industries[1][2].
One of the biggest shifts is the new requirement to classify all income and expenses into one of five categories: operating, investing, financing, income taxes, and discontinued operations[1][5]. This isn’t just a tweak—it’s a fundamental restructuring. Companies will also need to present two new mandatory subtotals: ‘operating profit or loss’ and ‘profit or loss before financing and income tax’[1][5]. These subtotals are designed to give investors a clearer view of core business performance, stripping out the noise of financing and tax effects.
Another headline change is the introduction of ‘management-defined performance measures’ (MPMs). These are subtotals or metrics that management uses outside the financial statements—think adjusted EBITDA or other non-GAAP measures. IFRS 18 now requires detailed disclosures about these MPMs in a single note, explaining how they’re calculated and why they’re useful[1][5]. The idea is to bring more discipline and transparency to these often-criticized metrics.
There’s also enhanced guidance on how to aggregate and disaggregate information, both in the primary statements and the notes[1][5]. The goal is to strike a balance: provide enough detail for users to understand what’s really going on, but avoid overwhelming them with minutiae.
Why This Matters for Your Team #
You might wonder if these changes are just a compliance exercise. They’re not. The way you present financial information shapes how investors, lenders, and other stakeholders perceive your company. Clearer, more consistent reporting can boost confidence, reduce the cost of capital, and even highlight strengths (or weaknesses) that were previously buried in the footnotes.
Consider this: a 2023 EY survey found that nearly 70% of investors want better disaggregation of financial statement line items to improve comparability. IFRS 18 directly addresses this demand[1]. Companies that get ahead of these changes can turn compliance into a competitive advantage, demonstrating transparency and building trust with stakeholders.
But there’s a flip side. The new rules will require significant effort—updating chart of accounts, retraining staff, revising disclosure controls, and maybe even overhauling internal reporting systems. The earlier you start, the smoother the transition will be. Waiting until 2026 could leave you scrambling.
Step 1: Assess the Impact on Your Financial Statements #
Your first move is to understand exactly how IFRS 18 will affect your specific financial statements. This isn’t a one-size-fits-all exercise. The impact will vary depending on your industry, business model, and existing reporting practices.
Actionable advice: Gather your current income statement and map each line item to the new five-category structure. Where do your revenues and expenses fit? Are there items that don’t neatly fall into operating, investing, or financing? For example, a manufacturing company might classify factory maintenance as operating, while a tech firm could debate whether R&D costs are operating or investing. These distinctions matter—get your finance and operational teams together to hash them out.
Practical example: Suppose your company has historically reported ‘other income’ as a single line. Under IFRS 18, you’ll need to break this down. Interest income from short-term deposits might go under ‘investing,’ while gains from foreign exchange could be ‘operating’ or ‘financing,’ depending on their nature. Start tracking these details now, so you’re not caught off guard later.
Step 2: Review and Rationalize Your Management-Defined Performance Measures #
MPMs are about to get a lot more scrutiny. If your company uses adjusted EBITDA, free cash flow, or any other non-IFRS metric in earnings releases or investor presentations, you’ll need to disclose how these are calculated and reconcile them to the most directly comparable IFRS measure[1][5]. This isn’t just about compliance—it’s an opportunity to critically assess whether these metrics still serve their purpose.
Actionable advice: Create an inventory of all MPMs your company uses. For each, document the calculation methodology, the rationale for its use, and any adjustments made. Then, ask the tough questions: Is this metric still relevant? Does it provide meaningful insight, or is it obscuring important information? Be prepared to justify each one to auditors and regulators.
Practical example: A retail company might highlight ‘like-for-like sales growth’ as a key performance indicator. Under IFRS 18, you’ll need to define exactly what ‘like-for-like’ means, explain any adjustments (e.g., excluding store openings or closures), and show how this figure relates to reported revenue. This level of transparency can actually strengthen your narrative—if the metric is robust.
Step 3: Update Your Chart of Accounts and Reporting Systems #
IFRS 18 will likely require changes to your chart of accounts and financial reporting systems. You’ll need to capture income and expenses in a way that supports the new classification requirements, and you may need to add new reporting lines or dimensions to your ERP system.
Actionable advice: Work closely with your IT and systems teams to assess what changes are needed. Can your current systems handle the new categories and subtotals? If not, budget and plan for upgrades or workarounds. Don’t forget about interim reporting—the changes apply there too, so your systems need to be flexible enough for both annual and quarterly filings[5].
Practical example: A multinational might need to add a ‘discontinued operations’ segment to its chart of accounts, ensuring that any divestitures or closures are tracked separately from ongoing business. This might require new cost centers, reporting codes, or even training for local finance teams to ensure consistent application.
Step 4: Enhance Your Disclosure Processes and Controls #
With greater disaggregation and new disclosure requirements, your team will need to up its game on documentation and controls. The notes to the financial statements will become even more important, serving as the home for detailed explanations and reconciliations.
Actionable advice: Review your current disclosure checklist and update it for IFRS 18. Make sure your team understands what’s material and what’s not—the standard encourages entities to focus on information that’s truly relevant to users[1][5]. Consider creating templates for the new MPM disclosures to ensure consistency and completeness.
Practical example: A company with complex debt instruments might need to provide more detailed disclosures about the nature and terms of its financing activities, including any embedded derivatives or covenants. This could involve closer collaboration between treasury, legal, and reporting teams to gather the necessary information.
Step 5: Train Your Team and Communicate with Stakeholders #
IFRS 18 isn’t just a technical accounting change—it’s a cultural one. Your finance team, from preparers to reviewers, will need to understand the new rules and their rationale. So will your auditors, audit committee, and even senior management.
Actionable advice: Develop a training plan that covers the key changes, practical examples, and common pitfalls. Use real-life scenarios from your business to make the training relevant. Don’t forget to brief your investor relations and communications teams—they’ll need to explain the changes to analysts and shareholders.
Practical example: Hold a series of workshops where teams work through sample financial statements, classifying income and expenses under the new rules and drafting MPM disclosures. Encourage questions and debate—this is how you’ll uncover potential issues before they become problems.
Step 6: Test and Refine Before Go-Live #
The worst time to find out your processes aren’t working is during year-end close. Run a dry