IFRS 18: What Finance Teams Need to Prepare Before 2027 Reporting

Effective date: IFRS 18 applies for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.

IFRS 18 Presentation and Disclosure in Financial Statements changes how companies structure and explain financial performance. It replaces IAS 1, introduces a more defined structure for the statement of profit or loss, creates new disclosure requirements for certain management-defined performance measures, and strengthens the principles for aggregation and disaggregation.

The standard does not generally change how revenue, assets, liabilities or expenses are measured. Its main effect is presentation and disclosure. That still makes implementation a systems and controls project: finance teams need the right account mapping, reporting logic, comparative data, management-measure governance and audit evidence before the first IFRS 18 reporting period.

Why finance teams should prepare before 2027

For a calendar-year entity, the first mandatory IFRS 18 financial statements will be for the year ending 31 December 2027. Because the standard is applied retrospectively, comparative information also needs to be prepared on the new basis. Waiting until the 2027 year-end close would therefore leave too little time to redesign mappings, reporting packs and supporting schedules.

A useful starting point is to treat 2026 as the implementation year: understand the requirements, map current reporting, identify data gaps, test the new presentation and decide who owns the judgments.

The statement of profit or loss gets a more defined structure

IFRS 18 requires income and expenses in the statement of profit or loss to be classified into five categories: operating, investing, financing, income taxes and discontinued operations.

For many entities, the most visible change will be the presentation of two defined subtotals:

• operating profit or loss; and
• profit or loss before financing and income taxes.

This creates a more comparable structure than the more flexible presentation that existed under IAS 1. It does not remove judgment. In particular, entities with specified main business activities such as investing in certain assets or providing financing to customers may have different classification outcomes for some income and expenses.

Operating does not simply mean “everything left over”

Finance teams will need a disciplined mapping of general-ledger accounts into the IFRS 18 categories. The exercise should not be reduced to renaming existing lines in a reporting template.

For each material income or expense stream, ask what generates it, which IFRS 18 category applies, whether the entity has a specified main business activity, and whether the current chart of accounts contains enough information to classify it consistently.

That may expose practical problems. One general-ledger account may currently contain items that need different presentation. A consolidation package may collect too little detail. A manual year-end spreadsheet may be doing classification work that should be controlled in the reporting system.

Management-defined performance measures move into the notes

IFRS 18 introduces disclosure requirements for management-defined performance measures (MPMs). An MPM is, broadly, a subtotal of income and expenses used in public communications outside the financial statements to communicate management's view of an aspect of the entity's financial performance as a whole, where that subtotal is not already specified by IFRS Accounting Standards.

Measures such as adjusted operating profit, adjusted profit or adjusted EBIT may therefore need assessment. A label alone does not determine whether a measure is an MPM; the definition and how the measure is used in public communications matter.

Where a measure is an MPM, the financial statements include a note explaining the measure and how it is calculated, reconciling it to the closest IFRS-specified subtotal or total, and providing required information about reconciling items.

MPMs are also a governance issue

This requirement reaches beyond the financial-reporting team. Investor presentations, annual-report commentary, public performance releases and other public communications may use measures that finance has historically treated as management reporting rather than audited financial-statement information.

Finance teams should therefore create an inventory of public performance measures and establish ownership over definitions, calculations, approvals and changes. If a measure changes from one period to another, the reason and effect need to be controlled and explainable.

This is a natural link to FGL's broader view that systems and automation do not remove the need for governance over financial information.

Aggregation and disaggregation need a fresh review

IFRS 18 strengthens the discipline around grouping information. Material information should not be obscured by combining items with different characteristics, while immaterial detail should not overwhelm the primary financial statements or notes.

Finance teams should review broad captions such as “other income”, “other expenses”, “administrative expenses” and “miscellaneous costs”. The question is not whether those labels are prohibited. The question is whether the aggregation gives users useful information about items with similar characteristics.

This review may require better reporting dimensions, clearer account descriptions and more consistent consolidation instructions.

Operating expenses may require better data by nature

Entities presenting operating expenses using function line items need to pay particular attention to the supporting disclosure requirements. IFRS 18 includes requirements for specified expenses by nature when those amounts are included within function-based operating expense line items.

That can expose a data problem where payroll, depreciation, amortisation, impairment or inventory write-down information cannot be traced reliably through the consolidation process. The accounting conclusion may be straightforward while the system extraction is not.

IAS 7 cash-flow presentation also changes

IFRS 18 is accompanied by amendments to IAS 7 Statement of Cash Flows. Entities using the indirect method will use operating profit or loss as the starting point for reporting operating cash flows.

The amendments also reduce the previous classification alternatives for interest and dividend cash flows. For companies without specified main business activities, interest paid and dividends paid are generally classified as financing cash flows, while interest received and dividends received are generally classified as investing cash flows. Entities with specified main business activities need to apply the relevant IAS 7 requirements for their circumstances.

Existing cash-flow models, mapping tables and automated reporting templates should therefore be tested rather than assumed to remain valid.

What should change in the chart of accounts and reporting system?

IFRS 18 does not prescribe a chart of accounts. But implementation may still require better coding and reporting dimensions so the finance team can produce the required presentation without uncontrolled manual adjustments.

Consider whether the system can identify:

• income and expenses by the required profit-or-loss category;
• the nature of expenses needed for disclosure;
• items included in management-defined performance measures;
• reconciling items between management reporting and IFRS subtotals;
• comparative-period information on the same basis; and
• cash-flow classifications under the amended IAS 7 requirements.

This is where accounting policy and system design meet. FGL's revenue-reconciliation guide makes the same broader point: reliable reporting requires a controlled bridge between operational systems, accounting records and external reporting.

A practical IFRS 18 implementation sequence

1. Build the requirements map. Identify the IFRS 18 changes relevant to the entity, including profit-or-loss categories, subtotals, MPMs, aggregation, expense presentation and IAS 7 amendments.
2. Map the current financial statements. Compare every existing line and subtotal with the IFRS 18 structure.
3. Review the chart of accounts and consolidation pack. Identify where one account or reporting line contains information that will need separate treatment.
4. Inventory public performance measures. Test which measures may meet the MPM definition and who owns each calculation.
5. Prepare draft reconciliations. Reconcile MPMs to the closest IFRS total or subtotal and retain support for adjustments.
6. Test expense data. Confirm that required expense information can be produced consistently at entity and group level.
7. Update cash-flow reporting. Test the new indirect-method starting point and interest/dividend classifications.
8. Prepare comparatives early. Do not wait until the first 2027 reporting close to recreate comparative information.
9. Run a dry close. Produce a draft IFRS 18 statement of profit or loss and key notes from the existing system before go-live.
10. Document judgments and controls. Record classification decisions, MPM governance, review controls and system changes for audit.

How IFRS 18 fits with IFRS 15 and finance systems

IFRS 18 and IFRS 15 answer different questions. IFRS 15 determines when and how much revenue is recognised from contracts with customers. IFRS 18 focuses on how financial performance is presented and disclosed once amounts have been recognised under the relevant standards.

That distinction matters for implementation. A company can have a technically sound revenue-recognition policy and still have weak presentation mapping, poor MPM governance or an unreliable reporting process.

Finance teams should therefore treat IFRS 18 as part of the reporting architecture, not as a late-stage formatting exercise. The Accounting & IFRS desk and Systems & Automation desk bring those two sides together.

Questions finance leaders should ask now

• Can our current reporting system produce the IFRS 18 categories without major manual rework?
• Have we identified whether the entity has any specified main business activities?
• Which publicly used performance measures may be MPMs?
• Who approves the definition and calculation of those measures?
• Can we produce the required expense information by nature where needed?
• Have the IAS 7 cash-flow changes been built into our reporting model?
• Can we produce comparative information on the IFRS 18 basis?
• Have external reporting, systems, investor-relations and audit teams agreed on the implementation timetable?

FGL practical view

IFRS 18 is best treated as a controlled reporting-change project. The accounting standard sets the presentation and disclosure requirements, but successful implementation depends on data structure, reporting logic, management-measure governance, comparative information and review controls.

The useful question is therefore not merely “Have we read IFRS 18?” It is “Can our finance process produce IFRS 18 information accurately, repeatedly and with evidence?”

Sources

• IFRS Foundation — IFRS 18 Presentation and Disclosure in Financial Statements
• IFRS Foundation — IFRS 18 supporting material
• IFRS Foundation — IAS 7 Statement of Cash Flows

Professional-use note: This article is educational. IFRS 18 classification and disclosure conclusions depend on an entity's facts, business activities and other applicable IFRS Accounting Standards.