Are you aware that IFRS 18 is set to replace IAS 1 from 1st January 2027? If not, don’t worry, we’re going to break it down for you in this blog.
Let’s dive in!
What is IAS 1?
IAS 1 sets out the overall requirements for presenting financial statements, including guidelines for their structure and minimum requirements for their content. It requires an entity to present a complete set of financial statements at least annually, with comparative amounts for the preceding year, including comparative amounts in the notes.
It’s been the backbone of financial statement presentation for years, giving finance teams a consistent framework to work within. But that framework has also allowed a lot of variation between companies, which is exactly what IFRS 18 is designed to address. Once it comes into effect, IAS 1 will be withdrawn, and IFRS 18 will set new expectations for how income and expenses are presented, labelled, and explained.
Structured P&L categories
Under IFRS 18, the income statement must present income and expenses across five defined categories:
- Operating
- Investing
- Financing
- Income taxes
- Discontinued operations
Each category groups together activities with similar characteristics, so readers of the accounts can see at a glance where performance is coming from. The headline change is a mandatory operating profit subtotal. Until now, ‘operating profit’ has meant different things to different companies, with some including items others would exclude. This subtotal gives a consistent, comparable line that previously varied widely between entities, so two companies in the same sector will finally be easier to compare side by side, without finance teams needing to dig into the notes to work out what’s actually being measured.
Management-defined performance measures (MPMs)
Many companies use their own profit measures alongside the statutory figures, often referred to as ‘adjusted’ earnings, in places like earnings releases or investor packs. These measures can be useful, but they’ve also made it harder for readers to see how the adjusted number relates to what’s actually reported.
Under IFRS 18, if a company publicly discloses one of these non-GAAP profit measures, it must now reconcile that measure to the most directly comparable IFRS total within the financial statements. The reconciliation needs clear labelling and must show the tax and non-controlling interest (NCI) effects involved. In short, this closes the gap between ‘adjusted’ numbers and reported figures, giving investors and stakeholders a clearer line of sight between the story a company tells and the numbers behind it.
Disaggregation discipline
IFRS 18 also brings enhanced guidance on when and how to break down line items. Rather than simply meeting the minimum requirements for what needs to be shown, entities are now expected to think about what level of detail is genuinely useful to the people reading the accounts.
This is a meaningful shift in mindset. It moves finance teams away from a tick-box approach to disclosure and towards one that’s led by usefulness and relevance. In practice, that might mean breaking out a cost line that’s material to understanding performance, even if it wasn’t previously called out separately.
Grouping rules
Alongside disaggregation, IFRS 18 tightens the rules on aggregation too. Items can only be grouped together if they share similar characteristics, which means the ‘miscellaneous’ or ‘other’ catch-all categories many finance teams have relied on become much harder to justify under the new framework.
This works hand in hand with the disaggregation principle, information that matters needs to be shown clearly, and information that’s grouped together needs to actually belong together. It’s a more deliberate, considered approach to presentation overall.
What this means for you
These changes represent a real shift in how financial statements are built and presented, not just a change in terminology. Finance teams will need to revisit how income and expenses are categorised, how non-GAAP measures are reconciled and disclosed, and how reporting templates and systems are structured to support the new requirements.
With 1st January 2027 coming around quicker than we all realise, it might feel like there’s plenty of time, but preparation tends to take longer than expected once you start mapping current processes against the new requirements.
Now is a good time to start thinking about what IFRS 18 means for your reporting, your systems, and your team!
You can read more about these changes, here.
If you’d like to talk through how IFRS 18 might affect your finance function, we’re always happy to help. You can give us a call on 01824 780000, or email us, info@itassolutions.co.uk
Sophie is part of the itas marketing team, working across campaigns, anything creative, and running our social media accounts!
Sophie usually spends her days either working, drawing, or gaming. When she’s not at her desk, she will be out and about walking her dog, Cooper, or cuddling on the sofa with her cat, Rex!
