IFRS 18: Presentation and Disclosure in Financial Statements

In April 2024, the International Accounting Standards Board (IASB) issued IFRS 18 – Presentation and Disclosure in Financial Statements, a long-anticipated standard that replaces IAS 1 after more than two decades. With an effective date of January 1, 2027, IFRS 18 marks a major turning point in how financial performance is presented, aiming to bring consistency, clarity, and comparability to the forefront of financial reporting.

The introduction of IFRS 18 addresses a critical issue long observed in financial statements: the lack of structure and comparability in the presentation of the profit or loss statement. Under IAS 1, companies had considerable flexibility in how they reported performance, particularly when it came to defining key subtotals like operating profit. This flexibility often resulted in significant variation across companies, making it difficult for investors and analysts to draw meaningful comparisons between peers or across industries. IFRS 18 steps in to solve this problem by standardizing the structure of the income statement and introducing clearly defined categories and subtotals that all entities must follow.

One of the most significant changes under IFRS 18 is the mandatory inclusion of specific performance subtotals in the statement of profit or loss. These include operating profit, profit before financing and income tax, and profit before tax. The goal is to reduce ambiguity and ensure that users of financial statements can more easily understand the sources of a company's profitability. Alongside these subtotals, IFRS 18 requires companies to classify all income and expenses into defined categories such as operating, investing, financing, income tax, and discontinued operations. This consistent classification system enhances transparency and helps users distinguish a company’s core performance from other financial activities.

Another major feature of IFRS 18 is its treatment of management performance measures, or MPMs. These are financial measures that companies choose to present in addition to IFRS-defined figures—such as adjusted earnings or core profit—often tailored to show performance in a more favourable light. Under the new standard, companies must clearly define each MPM, reconcile it to the nearest IFRS subtotal, and explain any changes or inconsistencies over time. This is a significant step forward in addressing concerns around the reliability of non-GAAP measures and in promoting accountability in financial reporting.

Furthermore, IFRS 18 imposes greater demands on disaggregation. It encourages companies to break down broad line items into their meaningful components rather than grouping unrelated items under vague headings like "other expenses." The aim is to provide deeper insight into what is driving results—whether it's impairment losses, restructuring charges, or litigation costs—so that stakeholders can form a clearer picture of a company’s financial health.

The standard becomes mandatory from 1 January 2027, with early application permitted. Companies that adopt it will need to restate their comparative periods, meaning that transition planning must begin well in advance. This isn't just an accounting exercise—it will require updates to ERP systems, chart of accounts structures, internal reporting frameworks, and investor communication strategies. Finance teams, senior management, and audit committees will need to work closely to ensure readiness, particularly in aligning internal KPIs with the externally reported figures.

IFRS 18 is more than a technical upgrade. It signals a shift in mindset—one that places greater emphasis on transparency, structure, and consistency. For companies that embrace this change early, it offers an opportunity to build greater trust with investors and to present performance in a way that truly reflects economic reality. As financial reporting enters a new era, IFRS 18 stands as a critical foundation for building more informative and comparable global financial statements.