Financial reporting is entering an important new phase. From 1 January 2027, IFRS 18 Presentation and Disclosure in Financial Statements will replace IAS 1 for entities that prepare financial statements in accordance with IFRS Accounting Standards.
While the implementation date may still appear some distance away, the transition will require preparation well before the first IFRS 18 financial statements are issued. For many finance teams, this will involve reviewing income statement formats, reporting processes, chart of accounts structures, performance measures and the underlying systems used to produce financial information.
IFRS 18 is not simply a technical accounting update. It is an opportunity to reassess how financial performance is communicated to management, investors, lenders and other stakeholders.
A clearer structure for financial performance
One of the most significant changes introduced by IFRS 18 concerns the presentation of income and expenses in the statement of profit or loss.
The standard introduces defined categories for income and expenses, including operating, investing and financing. It also requires new subtotals, including operating profit or loss and profit or loss before financing and income taxes.
The aim is to improve comparability between financial statements and help users better understand how an entity generates financial performance.
For businesses, this may mean reconsidering how transactions are currently classified and whether existing financial reporting structures provide the required level of clarity. What may appear to be a presentation change can have implications across accounting processes, management reporting, financial systems and stakeholder communications.
Management performance measures will require greater discipline
Many businesses use measures such as adjusted operating profit, adjusted earnings, EBITDA or similar indicators to explain performance to management, shareholders, lenders or the wider market.
Under IFRS 18, management-defined performance measures that meet the relevant criteria will need to be disclosed in the financial statements, together with information explaining how they are calculated and why they provide useful insight into financial performance.
This will require greater discipline around the way performance measures are defined, applied and communicated.
Finance teams should consider whether their current KPIs are used consistently across board reporting, management accounts, investor presentations and statutory financial statements. Where differences exist, these should be understood and addressed early.
The objective is not to eliminate management insight. It is to ensure that performance measures are clear, transparent and capable of being reconciled to the financial statements.
Comparative information makes early preparation essential
IFRS 18 must be applied retrospectively. For entities with a calendar year-end, this means that 2026 comparative information will need to be presented in accordance with the new requirements when the first IFRS 18 financial statements are issued for 2027.
This makes 2026 a critical preparation year.
Organisations should not wait until year-end to consider the impact. A proactive approach will allow finance teams to identify classification issues, amend reporting structures and ensure that systems can capture the information required for comparative reporting.
Practical steps to take now
A structured readiness review can help finance teams prepare for the transition. Areas for consideration include:
- Reviewing the current statement of profit or loss and the classification of income and expenses
- Assessing whether the chart of accounts and reporting systems can support the new presentation requirements
- Identifying management-defined performance measures currently used in internal and external communications
- Reviewing board packs, management accounts and investor reporting for consistency
- Considering whether financial reporting policies, controls and documentation need updating
- Ensuring finance teams understand the requirements and their practical implications
The impact will not be identical for every organisation. Businesses with more complex financing arrangements, multiple revenue streams, significant investment activities or extensive performance reporting may need to undertake a more detailed assessment.
A chance to improve financial reporting
IFRS 18 should not be viewed solely as a compliance exercise. It provides an opportunity to improve the quality, consistency and usefulness of financial information across the organisation.
Clearer reporting can strengthen internal decision-making, improve discussions with investors and lenders, and create greater alignment between statutory reporting and management performance analysis.
The businesses that begin preparing early will have more time to make thoughtful decisions, test changes and avoid unnecessary pressure closer to implementation.
How FINEX can help
FINEX supports organisations with accounting, financial reporting and technology-enabled finance processes. Our team can help assess the potential impact of IFRS 18, review reporting structures, identify practical system requirements and support finance teams as they prepare for implementation.
To discuss how IFRS 18 may affect your organisation, visit the FINEX website or contact our Accounting and Financial Services team.
