IFRS 18: what changes in your financial statements from 2027

Purpose

This memorandum summarises the key changes introduced by IFRS 18 Presentation and Disclosure in Financial Statements, which replaces IAS 1 and becomes mandatory for annual reporting periods beginning on or after 1 January 2027, with restated 2026 comparatives. It is intended to help management understand the scope of change, illustrate the practical impact with worked examples, and set out recommended next steps ahead of the effective date.

IFRS 18 does not change how profit or loss is measured. It changes how income and expenses are structured, classified and disclosed — which means every entity reporting under IFRS will be affected, regardless of industry or size.

Summary of key changes

IFRS 18 introduces three interlinked sets of requirements.

Three defined categories and two new subtotals

The statement of profit or loss must classify all income and expenses into three categories — Operating, Investing and Financing — with income taxes and discontinued operations shown separately. Two new mandatory subtotals appear on the face of the statement:

• Operating profit or loss.
• Profit or loss before financing and income tax.

Management-defined performance measures (MPMs)

Any subtotal of income and expenses that a company uses in public communications to describe financial performance — and that is not one of the subtotals required by IFRS — is now an MPM. MPMs must be disclosed in a single note in the financial statements, reconciled to the most directly comparable IFRS-defined subtotal, with the tax and non-controlling interest effect of each reconciling item and an explanation of why management considers the measure useful.

Enhanced aggregation and disaggregation

IFRS 18 sets clearer principles for grouping items that share characteristics and separating items that do not, to prevent burying material information inside generic lines such as “other expenses.” Entities that present operating expenses by function on the face of the income statement must now also disclose an analysis by nature in the notes.

A note on classification for lending and investing activities

Entities whose main business activity is investing in assets or providing financing to customers — for example, microfinance institutions — apply modified classification rules. Interest income and expense that would ordinarily fall into the Investing or Financing category for other entities is generally classified as Operating for these entities, because it arises from their core business. This distinction should be assessed early, as it directly affects where interest income and expense are presented.

At a glance: IAS 1 versus IFRS 18

Recommended next steps

• Map the current chart of accounts and trial balance line items to the new Operating / Investing / Financing categories.
• Identify any adjusted or non-IFRS metrics currently used in board packs, investor updates or annual report commentary — these will likely require MPM disclosure.
• Confirm whether the entity has a “main business activity” of investing or lending, which changes classification of interest income and expense.
• Prepare a by-nature expense breakdown now if operating expenses are presented by function, so the note is not a last-minute exercise.
• Build a dry-run restated 2026 income statement under IFRS 18 during 2026 to surface issues before the mandatory restatement.
• Brief the finance team and, where relevant, the audit committee on the timeline and expected presentational changes.

How Praxis can assist

Praxis Chartered Accountants can support your transition through a structured IFRS 18 readiness assessment: chart-of-accounts mapping, MPM identification, a dry-run restated income statement, and staff training ahead of the 1 January 2027 effective date. Please contact your engagement partner to schedule a scoping discussion.