The International Accounting Standards Board (IASB) has issued **IFRS 18 Presentation and Disclosure in Financial Statements**, marking the most significant overhaul to financial statement presentation in decades. Replacing IAS 1, the new standard becomes effective for annual periods beginning on or after **January 1, 2027**.
While the effective date is in 2027, companies must prepare during 2026 to ensure systems, processes, and comparative data are ready. Here are the three game-changing shifts you need to know.
1. New Defined Subtotals in the Income Statement
To improve comparability and reduce diversity in practice, IFRS 18 introduces three mandatory categories for income and expenses:
- Operating:The default category for main business activities. This creates a consistent definition of "operating profit" for the first time.
- Investing:Returns from assets generated independently of main business activities.
- Financing:Income and expenses from raising finance (borrowings, leases, etc.).
2. Management Performance Measures (MPMs)
Many companies use non-GAAP measures (like Adjusted EBITDA) in their communications. IFRS 18 requires these "Management-defined Performance Measures" to be included in a single note in the audited financial statements. Companies will need to:
- Explain why the measure provides useful information.
- Reconcile the measure to the most directly comparable IFRS subtotal.
- Explain any changes to how the measure is calculated.
3. Enhanced Grouping of Information (Aggregation and Disaggregation)
IFRS 18 provides new guidance on whether information should be in the primary financial statements or in the notes. It prevents companies from obscuring material information or aggregating dissimilar items. "Other" categories will now need to be clearly explained if they are large.
What You Should Do in 2026
Do not wait until 2027. We recommend taking the following steps now:
- Impact Assessment:Map your current chart of accounts to the new IFRS 18 categories.
- System Updates:Ensure your ERP or accounting software can support the new subtotals.
- Stakeholder Communication:Prepare investors and board members for changes in how your performance will be presented.
At ValidWave Consulting, we help clients navigate complex standard transitions. Contact us to discuss how IFRS 18 impacts your specific reporting structure.