IFRS 18 will introduce significant changes for both preparers and users of IFRS financial statements. Understanding the new presentation and disclosure requirements can help organizations assess the implications for financial reporting and take practical steps to prepare for adoption.
IFRS 18, Presentation and Disclosure in Financial Statements is the International Accounting Standards Board’s (IASB) most significant overhaul of financial statement presentation since IAS 1. IFRS 18 replaces IAS 1 and is effective for annual periods beginning on or after January 1, 2027. Its primary objective is to make organizations’ financial performance more transparent, comparable, and useful for investors, lenders, analysts, and other users of financial statements.
Why IFRS 18 Matters
Historically, organizations had flexibility in how they present the statement of profit or loss. That flexibility can make it challenging for users to compare operating performance across entities.
IFRS 18 responds to these challenges by introducing a more consistent structure for presenting income and expenses, specified subtotals, new disclosures for management-defined performance measures and stronger principles for aggregation and disaggregation.
| Area for improvement/ observations | How IFRS 18 addresses it | BDO’s thoughts |
|---|---|---|
| Similar transactions could be classified differently based on interpretation | Establishes five categories for income and expenses: operating; investing; financing; income taxes; and discontinued operations, supported by clear classification requirements. | These changes provide users with a better understanding of what drives earnings and improves the consistency of presentation with a clear distinction between operating, investing and financing activities. |
| Inconsistent definitions of operating profit limiting comparability across entities | Introduces defined income and expense categories and requires specified subtotals, including operating profit and, when applicable, profit before financing and income taxes | These new subtotals provide greater comparability between organizations, allow for easier benchmarking of operating performance, and reduce the need for analysts to recalculate operating results. |
| Key performance indicators and adjusted measures were often presented only outside the financial statements and with varying definitions | Requires disclosures for management-defined performance measures (MPMs), including what the measure communicates, how it is calculated, and a reconciliation to the most directly comparable IFRS subtotal | These new disclosure requirements provide users with greater transparency around MPMs, reduce the risk of misleading performance metrics, and help users reconcile true IFRS Accounting Standards results to these bespoke metrics. |
| Aggregation of line items could obscure material information and significant performance drivers | Strengthens aggregation and disaggregation principles, requiring more meaningful breakdowns when aggregation could obscure material information. | These improvements to aggregation and disaggregation provide more detailed insights into revenues, expenses, and unusual items. Additionally, they allow users to better identify and analyze trends and risks. |
An Overview of the Key Changes
Five Categories for income and expenses
IFRS 18 requires income and expenses in the statement of profit or loss to be classified into five categories:
- Investing
- Financing
- Operating
- Income Taxes
- Discontinued Operations
Mandatory Subtotals
Although operating profit has been commonly used in reporting under IAS 1, it was not a defined subtotal and thus was not consistently computed. IFRS 18 introduces definitions and requires two specific subtotals:
- Operating profit
- Profit before financing and income taxes1
Management-Defined Performance Measures
Many organizations communicate alternative or customized performance measures, such as adjusted operating profit or adjusted EBITDA. IFRS 18 refers to qualifying metrics as management-defined performance measures (MPMs) and requires informative disclosures. These disclosures include:
- A description of the aspect of financial performance communicated by the MPM
- The method used to calculate the MPM
- A reconciliation to the most directly comparable subtotal specified by IFRS 18 or another IFRS Accounting Standard
Subtotals already required to be presented or disclosed by IFRS Accounting Standards are not MPMs. IFRS 18.118 also identifies certain subtotals that are not considered MPMs, while IFRS 18.123 sets disclosure requirements for measures that qualify.
Stronger Aggregation and Disaggregation Principals
IFRS 18 introduces more specific principles for how information is labeled, grouped and broken down. Organizations will need to consider whether aggregation obscures material information and whether additional disaggregation would provide more useful insight.
What IFRS 18 Means for Preparers
Adoption is more than a financial statement formatting exercise. Organizations should evaluate how the requirements may affect the financial reporting close process, the preparation of the financial statements, supporting systems and internal controls.
Key Areas to consider include:
- Redesigning the financial statement format
- Reassessing income statement classifications
- Evaluating the chart of accounts and the mapping of underlying transactions
- Developing processes to identify and track MPMs
- Updating reporting systems and controls
- Assessing the effect on comparative period information for the first year of adoption
Comparative information will be important as well. IFRS 18.31 and IFRS 18.32 require comparative information, which means organizations must apply the standard retroactively to present compliant comparative information in the first period of adoption.
What IFRS 18 Means for Financial Statement Users
For investors and other users, IFRS 18 is intended to support more consistent reporting, better visibility into operating performance and greater clarity around MPMs. Potential benefits include:
- Improved comparability of organization metrics across entities
- More transparency when entities are reporting MPMs
A clearer understanding of the entity’s operating performance versus financing and investing performance
BDO Is Here to Help
Understanding and adopting IFRS 18 is no small feat, it may require coordination across accounting, financial reporting, systems, controls, and governance teams. For organizations evaluating how they can prepare now, assessing the potential impacts across those areas is an important place to start. BDO is readily available to assist organizations with a suite of services relating to IFRS 18 and other topics, including:
- Impact assessments
- Technical accounting analysis
- Implementation support
- Financial statement redesign
- Chart of accounts reviews
- Audit readiness
- Board and Audit Committee education
BDO Trainings & Resources
Relevant Resources:
- IFRS 18 In Practice Guide
- IFRS 18 At A Glance (AAG)
- IFRS-18-the-clock-is-ticking
- IFRS 18 – practical effects on the statement of cash flows
- Interim illustrative financial statements with IFRS 18 presentation/disclosure examples
- Other BDO Global resources (including IFRBs and any other relevant publications)
Relevant Trainings:
- BDO Global IFRS 18 training courses (not eligible for US CPE)
- IFRS 18 Course 1: General Requirements
- IFRS 18 Course 2: Statement of profit or loss
- IFRS 18 Course 3: Statement presenting comprehensive income
- IFRS 18 Course 4: Statement of financial position
- IFRS 18 Course 5: Statement of changes in equity
- IFRS 18 Course 6: Notes and management-defined performance measures
- BDO USA On Demand Webcasts that include IFRS 18 content
- Q1 2026 – IFRS Accounting Standards Quartey Update
- FRS 18 Discussion: Main business activities & disclosures of key items by nature
- Q1 2025 – IFRS Accounting Standards Quartey Update
- IFRS 18 Discussion: Classification of income and expenses in the statement of profit or loss and the use of categories
- Q3 2025 – IFRS Accounting Standards Quarterly Update
- IFRS 18 Discussion: Aggregation and disaggregation of information
- Q4 2025 – IFRS Accounting Standards Quarterly Update
- IFRS 18 Discussion: Totals and subtotals presented in the statement of profit or loss
- Q1 2026 – IFRS Accounting Standards Quartey Update
- Upcoming Webcasts
1Certain entities are not permitted to present this subtotal; refer to IFRS 18.73