The International Accounting Standards Board (IASB) has issued IFRS 18: Presentation and Disclosure in Financial Statements, a new standard that will replace IAS 1 with effect from 1 January 2027, although earlier application is permitted. This represents one of the most significant developments in financial reporting in recent years and is designed to enhance clarity, comparability, and consistency across financial statements.
The Rationale Behind IFRS 18
For many years, investors, analysts, and other stakeholders have faced challenges in comparing financial performance across companies due to the absence of a uniform structure in the income statement. Under IAS 1, entities had flexibility in how they presented performance, including defining or omitting key subtotals such as “operating profit.” This variability often led to inconsistent reporting and hindered comparability between entities operating in different sectors or jurisdictions.
IFRS 18 directly addresses these concerns by introducing a standardised structure for presenting financial performance. The new framework promotes transparency, facilitates clearer communication of results, and enhances users’ ability to interpret and compare financial statements more effectively.
Key Features of the New Standard
The introduction of IFRS 18 primarily impacts the statement of profit or loss and introduces several important changes.
1. Standardised Categories of Income and Expense
All items of income and expense will now be classified within clearly defined categories: Operating, Investing, Financing, Income Taxes, and Discontinued Operations. This structured approach allows users to distinguish between results arising from an entity’s core operations and those related to investment or financing activities.
2. Mandatory Subtotals
IFRS 18 introduces required subtotals such as Operating Profit or Loss and Profit or Loss before Financing and Income Taxes. These subtotals, which were previously optional, will ensure that financial statements across companies follow a consistent and comparable presentation format.
3. Management-Defined Performance Measures (MPMs)
Many entities currently use performance measures that are not defined by IFRS, such as “adjusted EBITDA,” to communicate management’s view of financial results. Under IFRS 18, any such measures included in public communications must be clearly defined, reconciled to IFRS figures, disclosed in the notes, and subject to audit. This enhances the credibility and transparency of performance metrics presented to investors and other stakeholders.
4. Enhanced Aggregation and Disaggregation Requirements
The new standard introduces clearer guidance on when items should be combined or separated within the financial statements. This ensures that material information is presented in a meaningful way and that users can understand the components driving financial performance.
Implications for Businesses
While IFRS 18 does not alter recognition or measurement principles, it will significantly affect how financial information is presented and interpreted. The new format will improve the consistency and comparability of financial reporting globally, while also providing management with a better framework to communicate financial performance.
In preparation for implementation, entities should begin reviewing their current reporting structures and assessing the impact of the new presentation and disclosure requirements. Particular attention should be given to revising income statement layouts, updating financial systems, identifying management-defined performance measures, and planning for the restatement of comparative information as required under retrospective application.
Preparing for Implementation
The transition to IFRS 18 will require coordination across finance teams, auditors, and management. Early preparation is essential to ensure a smooth adoption process. Organisations are encouraged to evaluate the necessary system and process changes, engage with auditors to discuss implications, and begin training staff on the new presentation and disclosure requirements.
IFRS 18 represents a major step forward in improving the clarity, structure, and comparability of financial statements. Beyond compliance, it offers companies an opportunity to strengthen how they communicate their financial performance and strategy to stakeholders. By taking early action, businesses can ensure a seamless transition and position themselves to benefit from greater transparency and investor confidence.
How can NCMB be of help
At NCMB, we are proactively preparing for the adoption of IFRS 18. Our team is undergoing specialised training, reviewing reporting methodologies, and assisting clients in assessing their readiness for the new standard. By working closely with management teams, we aim to identify potential challenges early and provide practical guidance to ensure compliance and enhance reporting quality.
