IFRS 18 Explained: What Changes and How to Prepare for 2027

Short answer: IFRS 18 is the new IFRS Accounting Standard that replaces IAS 1 and reshapes how companies present the income statement. It sorts income and expenses into operating, investing and financing categories, adds two required subtotals and brings management’s own performance measures into the audited notes. It applies to annual periods beginning on or after 1 January 2027, with restated comparatives.

IFRS 18 Presentation and Disclosure in Financial Statements is the standard that sets out what IFRS financial statements must present and disclose, with a focus on the statement of profit or loss. It changes presentation, not measurement: according to the IASB’s project summary, total profit stays the same, but the way you show it does not.

For a December year-end company, the first annual report under the new rules covers 2027, and the 2026 comparatives must be restated. The work starts this year.

What does IFRS 18 change in the income statement?

It forces a common structure onto the statement of profit or loss. Every item of income and expense goes into one of five categories, and two new subtotals become mandatory: operating profit, and profit before financing and income taxes.

The reason is comparability. When the IASB studied 100 companies, more than 60 reported an operating profit figure, calculated in at least nine different ways, according to the IFRS Foundation’s announcement. A defined subtotal gives every reader the same starting point.

“IFRS 18 represents the most significant change to companies’ presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago.”

Andreas Barckow, Chair of the IASB, in the IFRS Foundation press release of 9 April 2024

The five categories, as set out in the project summary:

Three details catch teams out. Operating profit is not limited to “recurring” results, so unusual items stay inside it. Exchange differences follow the item that created them, so a loss on a foreign-currency loan lands in financing. Banks and insurers treat some investing and financing items as operating.

What are management-defined performance measures under IFRS 18?

Management-defined performance measures (MPMs) are subtotals of income and expenses that a company uses in public communications to show management’s view of its performance. Adjusted EBITDA and adjusted operating profit are typical examples.

Under the IASB’s summary of the requirements, MPM disclosures sit in a single note and include four elements:

• a reconciliation to the most directly comparable IFRS subtotal, showing the income tax and non-controlling interest effect of each reconciling item;
• a description of how the measure is calculated and how it communicates management’s view;
• an explanation of any change in the measures or in how they are calculated; and
• a statement that the measure is not necessarily comparable with similarly labelled measures from other companies.

Scope matters. Free cash flow, net debt and return on equity are not subtotals of income and expenses, so they are not MPMs. Social media posts and oral statements do not count as public communications here. Because MPMs move into the financial statements, the IFRS Foundation notes they become subject to audit.

How does IFRS 18 change aggregation and disaggregation?

It adds principles for grouping information, so line items are neither too vague nor buried in detail. The core rule is simple: aggregate items that share characteristics and separate items that do not.

The project summary also covers operating expenses. Companies present them by nature, by function or a mix, whichever gives the most useful structured summary. A company presenting by function must disclose five amounts in the notes for each operating line: depreciation, amortisation, employee benefits, impairment losses and inventory write-downs.

Expect pressure on the label “other”. The standard asks for more information about items grouped under it, so an unexplained “other expenses” line gets harder to defend.

When is IFRS 18 effective, and what does it replace?

It is effective for annual reporting periods beginning on or after 1 January 2027, and earlier application is permitted. It replaces IAS 1 Presentation of Financial Statements, according to the IFRS Foundation’s project page.

Transition is retrospective. Companies restate the prior-year comparatives under IAS 8, and the new requirements apply to interim financial statements in the first year. KPMG Ireland advises companies to track the information needed for FY2026 comparatives now. For a December year-end, the timeline looks like this:

• Financial year 2026: the comparative year, later restated in the new format.
• First 2027 interim report: the new categories and subtotals apply.
• Financial year 2027: the first full annual report under the new standard.

Much of IAS 1 survives, moved into the new standard, IAS 8 or IFRS 7. IAS 7 also changes: the indirect cash flow method now starts from operating profit.

What should Lebanese and Gulf finance teams prepare now for IFRS 18?

Start with an impact assessment, then fix the data before the presentation. Regulators in the region are already asking. In Kuwait, Capital Markets Authority Circular No. 9 of 2026 sets expectations for IFRS 18 gap assessments and implementation plans, according to KPMG in Kuwait.

For IFRS reporters in Beirut, Dubai or Riyadh, follow the areas KPMG flags:

1. Map every income statement line to a category. Watch interest on cash, investment property rent and exchange differences on borrowings.
2. Update the chart of accounts and consolidation. Capture categories at transaction level, not in a year-end spreadsheet.
3. List every public performance measure. Check press releases and investor decks, then decide which figures are MPMs.
4. Review covenants and bonuses. Many reference EBITDA or operating profit, and the new subtotal may move.
5. Build the expense-by-nature data. Presenting by function means tracking staff costs, depreciation and impairments per line.
6. Train the team. Classification calls are judgements, and they need one shared playbook.

Ownership usually sits with the financial controller, supported by IT and tax. Groups reporting to a US parent should also keep the differences between IFRS and US GAAP in view.

How Balance Brightness can help

We teach IFRS in live, interactive sessions that are never pre-recorded. Our IFRS Mastery program is an advanced, multi-week program on applying core standards, handling recognition, measurement and disclosure, and preparing compliant financial statements. It runs live online, with in-person sessions in Beirut and in-company options in Riyadh and Dubai, and we tailor it to your systems and industry.

Candidates sitting the IFRS paper can follow the separate IFRS for the LACPA exam track, which is independent preparation and not affiliated with LACPA. For whole departments, our corporate finance training runs at your premises, live online or both, using your own processes as case material. See how we work with organisations, and how Financial Analysis for Decision-Makers builds ratio skills. Programs are led by Mahmoud Chehade, with 30 years in practice and 500+ professionals trained.

Frequently asked questions

Does IFRS 18 change how much profit a company reports?

No. The standard changes presentation and disclosure, not recognition or measurement, so net profit for the year stays the same. What changes is the path to that number. Income and expenses are regrouped into categories, operating profit becomes a defined subtotal, and unusual items stay inside it. As a result, the operating profit you report may differ from the figure you used before. Ratios, covenants and bonus formulas built on the old figure should be tested against the restated 2026 comparatives well before year-end.

Is EBITDA a management-defined performance measure?

It depends on how it is defined. The IASB treats operating profit before depreciation, amortisation and impairments within the scope of IAS 36 as a subtotal the standards themselves specify, so that exact measure is not an MPM. Once you adjust it, for example by removing restructuring costs or one-off gains, it usually becomes one. If an adjusted figure appears in your press releases, annual report commentary or investor presentations and reflects management’s view of performance, expect to reconcile it in a single note, with the tax and non-controlling interest effect of each adjustment shown.

Can a company apply IFRS 18 before 2027?

Yes. Earlier application is permitted, although most companies use the time to prepare rather than adopt early. Early adopters still apply the standard retrospectively, which means restating the comparative year and following the new presentation in interim reports. Check first whether your regulator or stock exchange has issued its own guidance, as Kuwait’s Capital Markets Authority has. Ask your auditor early, because first-year classification choices are hard to reverse.

Does IFRS 18 affect the cash flow statement and balance sheet?

Yes, but less than the income statement. Under the IAS 7 amendments, the indirect method starts from operating profit, and most companies classify interest and dividends paid as financing and those received as investing. The balance sheet sees minimal changes, though the grouping principles apply to every statement and the notes. If your team wants a refresher on how the three statements fit together, the free Reading Financial Statements with Confidence webinar reads real statements together; new dates are listed on the webinars page.

The bottom line

IFRS 18 gives every income statement the same backbone: five categories, two required subtotals and audited disclosure of management’s own measures. With 2026 comparatives restated, the mapping, data and covenant work belongs on this year’s plan. To get your team ready, explore our IFRS Mastery program, the Financial Controller Track for those who will own the transition, or contact us to plan in-house training.

This article is general information about IFRS 18 and is not accounting, legal or financial advice. Confirm how the standard applies to your entity with your auditor or a qualified adviser before acting.

Sources

1. IFRS Foundation: Project Summary, IFRS 18 Presentation and Disclosure in Financial Statements (April 2024)
2. IFRS Foundation: New IFRS Accounting Standard will aid investor analysis of companies’ financial performance (9 April 2024)
3. IFRS Foundation: Primary Financial Statements
4. KPMG Ireland: Understanding IFRS 18
5. KPMG Kuwait: Getting Ready for IFRS 18? CMA Guidance and What It Means for You