IFRS 18 Presentation and Disclosure in Financial Statements will replace IAS 1 Presentation of Financial Statements. The new standard – IFRS 18 – will introduce three key new requirements on presentation and disclosures in the financial statements, with a focus on the income statement and reporting of financial performance.
Existing requirements of IAS 1 will be brought forward into IFRS 18 or other IFRS Accounting Standards with only limited changes.
IFRS 18, was introduced to address inconsistencies and gaps in how companies present financial performance, particularly in the income statement. Existing standards often led to varied practices in reporting key metrics like operating profit, making it difficult for investors and stakeholders to compare financial performance across entities. The lack of clear guidance on subtotals and management-defined performance measures (MPMs) further obscured transparency. IFRS 18 aims to standardize the structure of the income statement, enhance the comparability of financial data, and improve disclosure requirements to better reflect a company’s financial performance.
Income and expenses in the income statement are to be classified into three new defined categories—operating, investing and financing—and two new subtotals: “Operating profit or loss” and “Profit or loss before financing and income tax”.
There are also disclosures about Management-defined Performance Measures (MPMs) in the financial statements. MPMs are subtotals of income and expenses used in public communications to convey management’s view of the company’s financial performance.
There is enhanced general disclosure of information based on enhanced general requirements on aggregation and disaggregation. In addition, companies that present operating expenses by function in the income statement will be required to disaggregate them in the notes.
IFRS 18 will affect companies across all industries that prepare financial statements under IFRS Accounting Standards.
It will not change how companies recognise and measure items in the financial statements. However, it will affect the way companies present and disclose information in those financial statements.
Companies need to apply the IFRS 18 to their specific situations. This means making new judgments, handling complexities, and managing updates to systems and processes. The standard affects every company that prepares financial statements under IFRS standards. It brings significant changes to how companies present income statements and disclosures.
IFRS 18 may impact many aspects of how information is reported in the income statement. Companies may need to change the extent of information disclosed in the notes to the financial statements. Financial reporting systems, processes and controls may need updating because of these changes. As current reporting practices and reporting systems’ maturity differ among companies, the level of impact will likely vary.
Companies that already present an “Operating profit or loss” subtotal may need to change how they calculate it. Companies may need significant time and effort to identify which categories their income and expenses should sit within in the income statement.
The nature of a company’s business activities could also determine the extent of the impact—for example, companies with multiple business activities may need to exercise greater judgement in determining if revenue from all their activities would be classified within the operating category.
The new requirements on MPMs may impact current communication practices to investors and other stakeholders. Companies must strategize how to explain the different presentation and disclosure changes brought about by IFRS 18 to their stakeholders.
IFRS 18 will be effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted. Comparatives will require restatement.
Now is the time for companies to get ready to report under the new standard, which is effective from 1 January 2027 and applies retrospectively. This means that for companies with December year-ends, it will be necessary for any changes to systems, processes and controls to be in place as of 1 January 2026. In addition, companies will be required to present the new income statement categories and subtotals in the interim financial statements in the first year of applying IFRS 18. Early application of IFRS 18 is also permitted.
Management and those charged with corporate reporting responsibilities should begin understanding the new changes in detail and undertake an initial impact assessment to assess the likely areas of impact for the company.
KPMG encourages companies to start early in planning their IFRS 18 implementation.
