Executive Summary: IFRS 18 Presentation and Disclosure (2025/2026) – Global Update
Executive Summary: IFRS 18 Presentation and Disclosure (2025/2026) – Global Update
Source: BDO Global’s IFRS Accounting Standards In Practice – IFRS 18 Presentation and Disclosure in Financial Statements (2025/2026).
By: BDO Jordan
Overview of IFRS 18
The International Accounting Standards Board (IASB) issued IFRS 18 – Presentation and Disclosure in Financial Statements in April 2024. IFRS 18 replaces IAS 1 and is effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted. Although measurement principles remain unchanged, the new standard introduces sweeping changes to the presentation, classification and disclosure of financial information.
Key technical highlights
1. Classification of income and expenses
2. Mandatory subtotals in the statement of profit or loss
3. Management‑defined performance measures (MPMs)
4. Aggregation and disaggregation principles
5. Consequential amendments to the statement of cash flows
6. Other notable changes
Implementation timeline and considerations
Entities have about three years to prepare for IFRS 18, reflecting the substantial impact expected on financial reporting. Key preparation steps include:
Significance
IFRS 18 represents the most significant overhaul of financial statement presentation in decades. By requiring consistent classification of income and expenses, mandatory subtotals and transparent disclosure of management‑defined performance measures, the standard aims to enhance comparability and provide users with clearer insight into an entity’s performance. Early preparation is essential to ensure smooth implementation ahead of the mandatory 2027 effective date.
To review the complete report, you can download it from our global network website: IFRS-18-IP-2025-2026.pdf
By: BDO Jordan
Overview of IFRS 18
The International Accounting Standards Board (IASB) issued IFRS 18 – Presentation and Disclosure in Financial Statements in April 2024. IFRS 18 replaces IAS 1 and is effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted. Although measurement principles remain unchanged, the new standard introduces sweeping changes to the presentation, classification and disclosure of financial information.
Key technical highlights
1. Classification of income and expenses
- Five categories: All income and expenses must be classified into one of five categories—operating, investing, financing, income taxes or discontinued operations.
- General vs. entity‑specific classification: Classification generally depends on the nature of the income or expense (e.g., the type of asset or liability involved). However, entities with specified main business activities may classify some items within the operating category even if they would ordinarily be investing or financing.
- Improved comparability: These categories are designed to improve consistency and comparability of financial performance across entities.
2. Mandatory subtotals in the statement of profit or loss
- After items are classified, IFRS 18 requires presentation of mandatory subtotals in the statement of profit or loss.
- Operating profit becomes a required subtotal representing income and expenses classified in the operating category.
- Additional subtotals—such as profit before financing and income taxes—help users understand performance by reflecting how income and expenses are grouped.
3. Management‑defined performance measures (MPMs)
- IFRS 18 introduces management‑defined performance measures—non‑IFRS subtotals of income and expenses used in public communications.
- Entities must disclose these measures, reconcile them to the nearest IFRS subtotal and provide explanations for their use. Common examples include adjusted profit figures that exclude specific items such as share‑based payments or impairment charges.
4. Aggregation and disaggregation principles
- The standard establishes principles for aggregating and disaggregating information across primary statements and notes.
- These principles aim to balance the need for useful detail with the risk of over‑aggregation, enhancing transparency and comparability.
5. Consequential amendments to the statement of cash flows
- When using the indirect method, the starting point for the statement of cash flows will now be operating profit rather than total profit or loss.
- IFRS 18 also eliminates options for classifying interest and dividend cash flows, promoting consistency.
6. Other notable changes
- Goodwill presentation: Goodwill must be presented as a separate line item in the statement of financial position.
- Earnings per share (EPS): Amendments to IAS 33 restrict additional EPS measures to those derived from IFRS‑18‑defined subtotals or management‑defined performance measures, and enhanced disclosures are required when using MPMs as the numerator.
- Other statements: IFRS 18 does not significantly affect the statement of financial position or statement of changes in equity beyond the new aggregation/disaggregation principles and the separate presentation of goodwill.
Implementation timeline and considerations
Entities have about three years to prepare for IFRS 18, reflecting the substantial impact expected on financial reporting. Key preparation steps include:
- Assessment and mapping: Identify how current income and expenses will be reclassified into the new categories and determine required subtotals.
- Systems and processes: Update accounting systems, charts of accounts and reporting workflows to capture category‑level data and support mandatory subtotals.
- MPM governance: Review existing performance measures, define MPMs and prepare reconciliations and disclosures.
- Training: Educate finance teams, audit committees and other stakeholders on the new classification and aggregation rules.
- Communication: Inform investors, regulators and lenders about anticipated changes to financial statement presentation and metrics.
Significance
IFRS 18 represents the most significant overhaul of financial statement presentation in decades. By requiring consistent classification of income and expenses, mandatory subtotals and transparent disclosure of management‑defined performance measures, the standard aims to enhance comparability and provide users with clearer insight into an entity’s performance. Early preparation is essential to ensure smooth implementation ahead of the mandatory 2027 effective date.
To review the complete report, you can download it from our global network website: IFRS-18-IP-2025-2026.pdf