IFRS 18: Presentation and Disclosure in Financial Statements

In April 2024, the International Accounting Standards Board (IASB) issued the new standard IFRS 18 Presentation and Disclosure in Financial Statements. This standard replaces the current IAS 1 Presentation of Financial Statements. While it carries over several requirements from IAS 1 unchanged, it also introduces significant new mandates.

The standard subsequently underwent the European Union's endorsement process. As of February 13, 2026, IFRS 18 was officially endorsed by the European Union, clearing the way for its application by entities reporting under IFRS within the EU.

Summary of Key Changes Introduced by IFRS 18

Statement of Profit or Loss (Income Statement)

IFRS 18 introduces fundamental changes to the structure of the Statement of Profit or Loss. It mandates two new subtotals (operating profit and profit before financing and income tax) above the total profit or loss and newly classifies the statement into five distinct categories.

The following classification requirements apply to entities that do not have a specified main business activity as defined by IFRS 18 (e.g., non-financial entities).

Operating Income and Expenses

• Income and expenses that do not meet the criteria for classification in other categories, or for which classification in the operating category is explicitly required.

Operating Profit

Investing Category (Income and Expenses)

• Income and expenses from:

  • Investments in associates, joint ventures, and unconsolidated subsidiaries;

  • Cash and cash equivalents;

  • Other assets that generate income or expenses individually and largely independently of the entity’s other resources.

Profit Before Financing and Income Tax

Financing Category (Income and Expenses)

• Income and expenses related to raising finance;

• Interest income and expenses related to changes in interest rates on transactions that do not solely involve the raising of finance.

Income Taxes

Discontinued Operations

Profit or Loss for the Period

Information in the Notes to the Financial Statements

The standard also introduces new or revised requirements for disclosures in the notes. These primarily concern Management-defined Performance Measures (MPMs) and the principles of aggregation and disaggregation of information.

Management-defined Performance Measures (MPMs)

Management-defined Performance Measures (MPMs) are subtotals of income and expenses that an entity uses in its public communications outside of the financial statements. IFRS 18 now requires information regarding these indicators to be included directly within the financial statements in a single, separate note.

For entities whose financial statements are subject to audit, this summary note on MPMs will also be subject to audit verification. For many companies, this represents a significant shift in practice, as information about these indicators has historically been disclosed outside the financial statements and was not subject to auditor oversight.

Subtotals of income and expenses whose presentation or disclosure is explicitly required by IFRS standards are not considered MPMs. IFRS 18 also lists specific subtotals of income and expenses that are not classified as MPMs.

Aggregation and Disaggregation of Information

IFRS 18 introduces new principles for the aggregation and disaggregation of information. These principles apply not only to items of income and expense but also to items reported in the Statement of Financial Position (Balance Sheet). Similar items are aggregated in the financial statements primarily for practical reasons and to fulfill the IFRS 18 requirement that the primary financial statements provide a structured overview of an entity's assets, liabilities, equity, income, expenses, and cash flows.

Changes in Cash Flow Calculations

IFRS 18 also changes the starting point for calculating the Statement of Cash Flows when using the indirect method. Entities preparing the cash flow statement via the indirect method will now be required to start from operating profit. Prior to IFRS 18, the starting point for this calculation was typically the net profit or loss for the period.

Furthermore, IFRS 18 removes the previous accounting policy choices for the classification of interest and dividend cash flows. This change is intended to improve comparability across different entities.

Effective Date

IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, with early application permitted. The standard requires retrospective application, meaning the comparative period must be restated to comply with IFRS 18 requirements.