IFRS 18 is the new international standard for presenting and disclosing financial performance. Issued by the International Accounting Standards Board (IASB) in April 2024, it replaces IAS 1 – Presentation of Financial Statements and will be mandatory for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. For decades, users of financial statements struggled to compare performance across companies. Each entity could structure its income statement differently and define its own performance metrics — adjusted EBITDA, normalised profit, recurring earnings — without any consistent disclosure requirements.
Better aggregation and disaggregation
IFRS 18 tightens the rules on how financial information is grouped or separated across the primary financial statements and related notes. The objective is to ensure that material information is visible without burdening users with unnecessary detail.
Key requirements:
- Items in the primary statements should only be aggregated if they share similar characteristics
- Items that differ in nature, function, or measurement basis must be disaggregated in the notes
- Broad “catch-all” line items — such as other income or other expenses — that bundle together dissimilar items are no longer acceptable
- Enhanced note disclosures will be required for material or unusual items
For many companies, this will require a review of existing financial statement line items, note structures, chart of accounts, and reporting templates. Systems and reporting tools may need to be remapped to support the new level of granularity.
FAQs
What is IFRS 18?
IFRS 18, titled Presentation and Disclosure in Financial Statements, is a new accounting standard issued by the IASB in April 2024. It replaces IAS 1 and introduces defined income statement categories, a mandatory operating profit subtotal, and standardised disclosure rules for management performance measures such as adjusted EBITDA.
When is IFRS 18 effective?
IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027. Earlier application is permitted. Because comparative information is required, companies effectively need their transition framework in place before the 2026 financial year begins.
Which companies are affected by IFRS 18?
IFRS 18 applies to all entities that prepare financial statements in accordance with IFRS — including listed companies, large private entities, and public-interest entities across more than 140 jurisdictions that have adopted IFRS. Companies using US GAAP are not directly affected.
How does IFRS 18 define operating profit?
Under IFRS 18, operating profit is a required subtotal defined by exclusion. It includes all income and expenses except those classified within the investing, financing, income tax, and discontinued operations categories — providing a standardised benchmark for cross-entity comparison for the first time under IFRS.
Does IFRS 18 affect the cash flow statement?
Yes. IFRS 18 introduces an integral linkage principle — certain cash flows must be classified consistently with how the related income and expenses are presented in the income statement. This may affect the classification of interest received, interest paid, and dividends.
