IFRS 18 Hub
Presentation & Disclosure in Financial Statements
The most significant change to income statement presentation in decades. This hub equips Abacus member firms to understand, implement, and advise clients on IFRS 18 — replacing IAS 1 from 1 January 2027.
What Is IFRS 18 and Why Does It Matter?
IFRS 18, Presentation and Disclosure in Financial Statements, was issued by the IASB in April 2024 and replaces IAS 1 from 1 January 2027. It is not a minor update — it fundamentally restructures the income statement, introduces mandatory performance subtotals that most companies do not currently present, and creates a new regulated disclosure category for Management Performance Measures. It is the most significant change to P&L presentation since IAS 1 was last substantially revised in 2007.
⚡ Advisory Alert — Start Now
IFRS 18 requires retrospective restatement of prior period comparatives. For a December 2027 year-end reporter, this means restating FY2026 figures using the new structure. Finance teams need to understand the new categories now, model the impact on their reported subtotals, assess MPM disclosures, and brief investors and analysts well in advance. Member firms should be initiating IFRS 18 readiness conversations with all IFRS-reporting clients in 2025–2026.
Six Things That Are Fundamentally Different
IFRS 18 requires entities to classify all income and expense items in the income statement into one of five defined categories: Operating, Investing, Financing, Income taxes, and Discontinued operations. Under IAS 1, classification was largely at management's discretion — entities could define their own line items and subtotals with limited guidance on what belongs where.
The Operating category is a catch-all — it captures everything not required to be in the other four categories. The Investing and Financing categories have specific definitions tied to the nature of the assets and liabilities they relate to. This creates new classification judgements, particularly for entities with complex treasury functions, associates and joint ventures, and mixed-activity financial items.
IFRS 18 mandates three specific subtotals that all entities must present in the income statement. These are: Operating profit or loss (income and expenses from Operating category only), Operating profit or loss and income and expenses from integral associates and JVs (Operating profit plus the share of results of associates/JVs integral to the main business), and Profit or loss before financing and income tax (the two above plus the Investing category).
These are labelled subtotals that must appear on the face of the income statement — they cannot be buried in notes. For many entities, particularly those with significant associate income, financial services subsidiaries, or complex treasury arrangements, these new subtotals will look very different from what is currently reported as "operating profit" and will require investor communication well in advance.
IFRS 18 creates a new category of disclosure for Management Performance Measures — subtotals of income and expenses that management uses in public communications outside the financial statements to communicate financial performance, and that are not specified by IFRS. Common examples include Adjusted EBITDA, Adjusted EPS, Underlying Profit, and Core Operating Profit.
Any MPM must now be disclosed in the notes with: a labelled presentation reconciling the MPM to the most directly comparable IFRS 18 subtotal, an explanation of why the measure provides useful information, and consistent application from period to period. MPMs that exclude recurring items face particular scrutiny.
IFRS 18 provides clearer principles for when items should be aggregated or disaggregated in the financial statements. An entity must not aggregate items that have different characteristics — and must disaggregate items that are sufficiently different to be material to understanding performance. The standard provides specific guidance on unusual income and expenses, which must be separately disclosed when material, either on the face of the income statement or in the notes.
The concept of "unusual items" replaces the old IAS 1 prohibition on extraordinary items but provides more structure — these are income and expenses with limited predictive value because they arise from events or transactions that are clearly distinct from the entity's ordinary activities. Examples include significant restructuring, litigation settlements, and impairments arising from one-off events.
IFRS 18 requires entities to distinguish between associates and joint ventures that are integral to the main business activities and those that are not integral. Income from integral associates/JVs is included in Subtotal 2 (between Operating profit and profit before financing). Income from non-integral associates/JVs is classified in the Investing category.
This distinction can significantly change reported operating and investing results — particularly for entities in industries where associate income is core (e.g. infrastructure groups, certain financial institutions, real estate companies with JV structures). The definition of "integral" is based on whether the associate/JV carries out the same or similar activities to the main entity, or directly supports those activities.
IFRS 18 amends IAS 7 to require that certain cash flows be classified in a way that is consistent with how the related income and expenses are classified in the income statement. This addresses a long-standing inconsistency where items classified as investing in the P&L could be classified as operating in the cash flow statement. Interest and dividends received and paid must be classified consistently with IFRS 18's income statement categories — ending the current IAS 7 flexibility that allowed interest paid to be classified as either operating or financing.
IAS 1 vs IFRS 18 — Key Differences at a Glance
| Topic | IAS 1 (Current) | IFRS 18 (From Jan 2027) |
|---|---|---|
| P&L categories | No defined categories — management discretion | Five defined categories: Operating, Investing, Financing, Tax, Discontinued ops |
| Mandatory subtotals | Profit before tax and profit for the period only | Three new mandatory subtotals — Operating profit, + integral associates, + Investing |
| Operating profit | Not defined — entities use their own definition | Defined: all Operating category items |
| Alternative performance measures | No specific IFRS requirements — subject to market guidance only | MPMs must be disclosed in notes with reconciliation and explanation |
| Associates/JVs | Share of results often shown as single line — no required split | Must split integral (Subtotal 2) and non-integral (Investing) |
| Unusual items | No definition — extraordinary items prohibited | Defined concept: separately disclosed when material |
| Cash flow classification | Policy choice for interest paid/received dividends | Must align with income statement classification — policy choice eliminated |
| Aggregation guidance | Limited — based on materiality and nature/function | Strengthened — must disaggregate items with different characteristics |
The New Income Statement Structure
IFRS 18 prescribes a specific ordering and structure for the income statement. Items must flow through the five categories, with the three mandatory subtotals appearing in defined positions. The format below shows a typical manufacturing or general commercial entity — the exact line items will differ by entity type, but the category structure and subtotal positions are mandatory.
Format Choice Retained
IFRS 18 retains the IAS 1 choice between presenting expenses by nature (materials, staff costs, depreciation) or by function (cost of sales, selling, administrative). However, if a function format is used, certain expenses by nature must be disclosed in the notes (as currently required under IAS 1). The category structure and subtotals apply regardless of which format is chosen.
Key Classification Judgements
Investing category captures income and expenses from assets that generate a return independently of the entity's main business — assets not integral to the ordinary course of operations. This includes: interest income on cash/deposits (for non-financial entities), dividends from equity investments held for return, gains/losses on investment disposal, fair value changes on non-integral investments, and share of results of non-integral associates/JVs.
Financing category captures costs of obtaining or repaying financing — interest expense on borrowings, lease interest (IFRS 16), net interest on pension obligations (IAS 19), and similar. For financial institutions, the Investing/Financing distinction works differently — IASB has provided specific guidance for banks and insurers.
Operating category is the catch-all. If an item does not qualify for Investing, Financing, Tax, or Discontinued Ops classification — it goes in Operating. This includes all trading income/costs, fair value changes on derivatives used for hedging, and for financial entities, interest income/expense from the core lending/borrowing business.
IFRS 18 recognises that for financial entities (banks, insurers, investment companies), interest income and expense are integral to the main business — not investing/financing items. IFRS 18 provides that entities whose main business activity is to provide financing to customers, or to earn returns from investments, classify interest and related items in the Operating category. This includes banks, insurance companies, and certain specialised finance businesses.
For mixed businesses (a manufacturing group with a captive finance subsidiary), the classification follows the substance of each activity. The manufacturing operations use Operating/Investing/Financing in the standard way; the finance subsidiary's interest income would be Operating for that subsidiary. Consolidated statements must reflect the underlying substance.
Management Performance Measures (MPMs)
MPMs are one of the most practically significant new requirements in IFRS 18. They apply to any subtotal of income and expenses that management uses in public communications outside the financial statements to communicate financial performance, where those subtotals are not specified by IFRS. Most listed companies will have MPMs — the question is how to present them compliantly.
Is Adjusted EBITDA an MPM?
Almost certainly yes — for any entity that discloses Adjusted EBITDA in press releases, investor presentations, or earnings calls. Adjusted EBITDA, Adjusted EPS, Underlying Profit, Normalised EBIT, Core Operating Profit — these are all likely MPMs if communicated publicly. IFRS 18 does not prohibit these measures. It requires them to be disclosed formally in the notes with a reconciliation to an IFRS 18 subtotal and an explanation of why they provide useful information.
A measure is an MPM if it meets all three criteria: (1) it is a subtotal of income and expenses — not a ratio, not a per-share measure, not a balance sheet or cash flow measure; (2) it is used by management in public communications outside the financial statements; and (3) it communicates financial performance (not position or liquidity) and is not specified by IFRS.
Not MPMs (but may still need disclosure under other IFRS): Return on equity, earnings per share (specified by IAS 33), free cash flow, net debt, ROCE, revenue growth rates, or measures based on balance sheet items. These fall outside the MPM definition but may be subject to other regulatory or listing requirements.
The "public communications" threshold: If a measure appears in earnings press releases, investor day presentations, annual report narrative sections (strategic report, MD&A), analyst guidance, or earnings calls — it is in "public communications" and likely an MPM if it meets the other criteria.
For each MPM, IFRS 18 requires a note disclosure containing: the label and value of the MPM for the current and prior period; a reconciliation to the most directly comparable IFRS 18-specified subtotal (e.g. reconcile Adjusted EBITDA to Operating profit, adding back depreciation, amortisation and specific adjustments); an explanation of each reconciling item; the income tax effect and non-controlling interest effect of each adjustment; and a description of why the MPM provides useful information about the entity's financial performance.
Consistency requirement: An MPM must be calculated consistently from period to period. If an entity changes how it calculates an MPM, it must explain why and provide restated comparatives. Selective adjustment (e.g. excluding a cost in a bad year but not in a good year) will be particularly scrutinised by auditors and regulators under IFRS 18.
Identify all MPMs: Review client earnings releases, investor presentations, annual report narratives, and management commentary over the past two years. List every non-IFRS subtotal used. For each, determine whether it meets the MPM definition. A measure used internally but never in public communications is not an MPM — though it may become one if disclosed.
Assess the adjustments: For each MPM, map the adjustments to IFRS 18 categories. Some adjustments — like excluding depreciation — are straightforward. Others — like "non-underlying" items — require careful analysis of whether the items are genuinely unusual or are being excluded to improve the appearance of performance. Auditors will scrutinise this.
Consider simplification: Some clients may choose to reduce the number of MPMs rather than disclose reconciliations for all of them. IFRS 18 doesn't prohibit having multiple MPMs, but the disclosure burden creates an incentive to rationalise. This is also an opportunity to align investor communications with the new mandatory subtotals.
Brief the audit committee: MPM disclosure is an audited note. The audit committee and board need to understand the requirements and approve the MPM disclosure policy before the first IFRS 18 accounts are prepared.
IFRS 19 — Subsidiaries without Public Accountability
IFRS 19, Subsidiaries without Public Accountability: Disclosures, was issued by the IASB alongside IFRS 18 in April 2024 and is also effective 1 January 2027. It provides a reduced disclosure framework for eligible subsidiaries that are part of a group that prepares IFRS-compliant consolidated financial statements. For Abacus member firms with clients that have subsidiary reporting requirements, IFRS 19 can significantly reduce preparation burden.
What IFRS 19 Is Not
IFRS 19 is not a separate reporting framework — it is IFRS with reduced disclosures. An IFRS 19 entity still applies all IFRS recognition and measurement requirements. It only reduces the disclosure requirements compared to full IFRS. This is important: it does not change the numbers — only the notes.
An entity can apply IFRS 19 if it meets two conditions: (1) it does not have public accountability — meaning it is not listed on a public market and does not hold assets in a fiduciary capacity for a broad group of outsiders (e.g. is not a bank, insurer, or pension fund); and (2) its ultimate or intermediate parent prepares consolidated financial statements available for public use that comply with IFRS Standards as issued by the IASB.
The intention is to allow wholly-owned or majority-owned subsidiaries within IFRS groups to prepare their own statutory accounts using IFRS recognition and measurement (so the numbers reconcile to the consolidated statements) but with significantly fewer disclosures — since the full disclosures exist at group level.
IFRS 19 specifies which disclosures from each IFRS standard are retained for eligible subsidiaries and which are removed. Broadly, IFRS 19 retains the disclosures most useful for the subsidiary's own stakeholders (creditors, minority shareholders, employees) and removes those that are primarily useful for investors in publicly accountable entities or that duplicate what exists at group level.
Key areas of reduction include: extensive segment reporting under IFRS 8 (no requirement if covered at group level); detailed financial instruments disclosures under IFRS 7 (simplified); extensive share-based payment disclosures under IFRS 2; detailed pension disclosures under IAS 19; and numerous quantitative disclosures under IFRS 9 (credit risk, liquidity analysis). The primary statements — balance sheet, income statement, cash flow, equity — remain required in full.
Importantly, IFRS 19 is optional, not mandatory. An eligible subsidiary can choose to prepare full IFRS financial statements instead. Once elected, IFRS 19 must be applied consistently — but the election can be changed with disclosure of the reason.
Jurisdiction availability: IFRS 19 is only available where the local jurisdiction permits it. EU member states will need to allow IFRS 19 use — this depends on local company law and how the IAS Regulation is interpreted for subsidiary accounts. Member firms should confirm local availability before advising clients to adopt.
Stakeholder acceptance: Even if legally permitted, lenders, minority shareholders, or other stakeholders may contractually require full IFRS disclosures. Review subsidiary loan agreements and shareholder agreements before recommending IFRS 19.
Cost-benefit: For large subsidiaries with complex operations, the reduced disclosure effort may be significant. For smaller, simpler subsidiaries, the effort of determining which disclosures apply under IFRS 19 may exceed the saving. Practical assessment is needed case by case.
Transition and Implementation
IFRS 18 requires full retrospective application — prior period comparatives must be restated using the new structure. For a December 2027 year-end, this means FY2026 income statement figures must be reclassified and restated. For a June 2027 year-end, the first IFRS 18 statements will be for the period ending June 2027 with June 2026 comparatives restated. Implementation needs to start now.
Retrospective — No Practical Expedient for the Structure
Unlike some IFRS transitions, there is no "simplified" transition option that avoids restating comparatives for the new P&L structure and subtotals. Comparatives must be restated. There are limited practical expedients for MPM disclosures (not required for comparative periods in the first year), but the income statement structure changes are fully retrospective.
Recommended Implementation Timeline for Advisors
The first phase is understanding the impact on each client before any systems or processes change. This involves: mapping the client's current income statement line items to the five IFRS 18 categories; identifying integral vs non-integral associates/JVs; identifying all potential MPMs from public communications; assessing the impact on the three mandatory subtotals compared to current reported figures; and identifying unusual items requiring separate disclosure.
- Map current P&L to five IFRS 18 categories — identify classification judgements
- Assess associate/JV classification — integral vs non-integral for each investment
- Identify all MPMs — review last two years of public communications
- Model new subtotals — compare to current reported metrics
- Identify unusual items — review recent periods for candidates
- Assess cash flow statement impact — identify interest/dividend classification changes
- Brief audit committee and board — set expectations on what will change
Once the impact is understood, clients need to design their new P&L structure and update the systems and processes that feed it. This includes: redesigning the chart of accounts or P&L mapping to capture IFRS 18 categories; updating ERP system configurations; designing the MPM note disclosure template; drafting updated accounting policies; and preparing draft restated comparatives using FY2025 data.
- Redesign chart of accounts / P&L mapping to capture five categories
- Update ERP or consolidation system configurations
- Design MPM note template — reconciliation format and tax/NCI calculation
- Draft restated FY2025 income statement using new structure
- Update accounting policies — new section for IFRS 18 category definitions
- Assess IFRS 19 eligibility for any subsidiaries with separate reporting requirements
- Update investor relations materials — brief analysts and investors on coming changes
In the year before first mandatory application, clients should run their new IFRS 18 structure in parallel with existing reporting. This allows any system issues or classification judgements to be resolved before the first statutory accounts are prepared. Interim reports in 2027 (if applicable) will be the first public IFRS 18 disclosures — these should be planned carefully.
- Run parallel IFRS 18 reporting from Q1 2026 or first interim of 2026
- Resolve classification judgements — document rationale for each
- Agree MPM disclosures with auditors — early engagement on content and format
- Prepare FY2026 restated comparatives — ready before first 2027 interim
- First IFRS 18 interim disclosures — for half-year or quarterly reporters, first IFRS 18 P&L appears mid-2027
- Investor communication — explain new structure alongside first IFRS 18 results
Practical Challenges to Watch
1. Interest income classification for mixed groups. Where a non-financial group has cash on deposit or intercompany loans, interest income is Investing. But if the group has a finance subsidiary, that subsidiary's interest income is Operating. Consolidation systems need to handle both consistently.
2. Hedging relationships and the P&L category. Gains and losses on hedging instruments must be classified in the same category as the hedged item. For a cash flow hedge of a foreign currency purchase (Operating), the hedge result is Operating. For a hedge of a foreign currency investment (Investing), the result is Investing. Hedge documentation may need updating.
3. MPMs that won't survive scrutiny. Some clients have used adjusted metrics to exclude costs that are in substance recurring. IFRS 18 MPM disclosures will bring these into the financial statements and into auditor scope. Early review of MPM definitions may avoid embarrassment at transition.
4. Understating the KPI impact. For entities with significant associate income (e.g. infrastructure groups where associates are integral), the new Operating profit subtotal may look very different from what management and analysts currently use. This needs investor relations preparation, not just accounting preparation.
5. Subsidiaries with different year-ends. Restating comparatives for consolidated entities with different year-ends adds complexity to the retrospective application. Plan data collection across the group early.
Sector Impact Assessment
The impact of IFRS 18 varies significantly by industry. Some sectors face structural changes to their headline metrics; others face limited impact. This tab gives member firm advisors a sector-by-sector view to prioritise client conversations and assess where the most complex advisory work will arise.
| Sector | Impact Level | Key Issues | Advisory Priority |
|---|---|---|---|
| Financial Services — Banks | High | Interest income/expense is Operating (main business). Complex classification for treasury. Significant MPMs (adjusted return metrics, CET1-based measures). Extensive IFRS 7 disclosures remain in notes. | Early engagement on category mapping for treasury. Review all investor-disclosed adjusted metrics for MPM requirements. |
| Insurance | High | Interacts with IFRS 17. Investment income classification (Operating for insurers). CSM-related disclosures. MPMs common (combined ratio, operating EPS). | IFRS 17 and IFRS 18 interaction needs simultaneous review. MPM disclosure for insurance operating profit definitions. |
| Infrastructure / Utilities | High | Significant associate/JV structures — integral vs non-integral classification material. Regulated asset base metrics common MPMs. Interest costs (IFRS 16, borrowings) significant. | Associate/JV integral classification is the primary issue. Model impact on Subtotal 2 early. Investor brief critical. |
| Real Estate | Medium-High | Investment property fair value gains — Operating or Investing? JV structures common. EPRA NTA and other sector metrics likely MPMs. Lease income classification. | Fair value change classification — investment property held for yield may be Investing. Assess EPRA metrics as MPMs. |
| Mining / Extractives | Medium | Joint operations common — allocation of revenue/costs. Rehabilitation provisions interest unwinding (Financing). Adjusted EBITDA with commodity price normalisation common MPM. | Joint operation income statement treatment. Review rehabilitation provision interest (Financing category). MPM assessment for adjusted EBITDA. |
| Technology / Software | Medium | Stock-based compensation often excluded in adjusted metrics — MPM review required. R&D classification (Operating). Interest on convertible notes (Financing). Non-GAAP metrics very common. | Tech sector has the highest density of non-GAAP metrics — likely highest volume of MPM disclosures. Start inventory of metrics early. |
| Retail / Consumer | Lower | Mostly straightforward Operating category. IFRS 16 lease interest (Financing). Some associate income (franchise structures). Like-for-like sales not an MPM (not a subtotal of income/expense). | IFRS 16 interest classification alignment with cash flow. Limited MPMs in most pure-play retailers. Lower complexity. |
| Manufacturing | Lower | Treasury income (Investing). Pension net interest (Financing). Some associate income. Restructuring costs (unusual items?). Adjusted EBIT excluding restructuring likely an MPM. | Restructuring cost treatment — unusual item vs recurring? Review adjusted EBIT/EBITDA definitions for MPM requirements. |
| Professional Services Firms | Lower | Simple P&L structure — mostly Operating. Partner compensation structures. Interest on working capital facilities (Financing). Sector-specific metrics not typically subtotals. | Limited impact on own financial statements. Primary role is advising clients — use this hub content directly in client conversations. |
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