IFRS 18 does not, merely by being issued, remeasure a company’s assets or liabilities. It reorganises how performance is presented. That alone can change what investors see as “operating” and which alternative metrics management must explain and reconcile.
What changes?
IFRS 18 replaces IAS 1 and focuses heavily on improving presentation of performance in the statement of profit or loss. It requires income and expenses to be classified into defined categories, most notably operating, investing, and financing, subject to specific requirements for particular business models.
It also requires specified subtotals, most notably operating profit and profit before financing and income taxes. Profit or loss remains a required total; strictly speaking, it is not a third newly introduced subtotal.
The operating category is the central residual category
A common mistake is to create a mechanical map: interest is investing, borrowing cost is financing, and everything else operating. The requirements are more nuanced. The entity’s main business activities can change classification, particularly for banks, investment entities, or companies that provide financing to customers as a main business activity.
Example: same net profit, different reading
A SaaS company earns 200 million of revenue, incurs 120 million of operating costs, receives 15 million of deposit interest, and pays 10 million of borrowing interest. The pre-tax result is 85 million under either presentation. The structured format, however, shows operating profit of 80 and a net five million from investing and financing. The total did not change; the source of the story did.
Management-defined performance measures
The Standard does not ban non-standard metrics. It brings certain subtotals of income and expenses used in public communications outside the financial statements into the MPM framework. When the definition is met, the measure is disclosed in a single note, including why it is useful, how it is calculated, and a reconciliation to the most directly comparable IFRS-specified total or subtotal, with tax and non-controlling-interest effects on reconciling items where required.
Why is this bigger than the reporting team?
- The chart of accounts and ERP must produce auditable classifications.
- Management KPIs, board packs, and investor communications need consistent definitions.
- Contracts linked to measures such as EBITDA require careful legal review; a presentation change does not automatically amend a contractual definition.
- Audit committees and auditors need judgement documentation and MPM policies early.
Readiness timeline
IFRS 18 is effective for annual periods beginning on or after 1 January 2027, with early application permitted, and is applied retrospectively. For a calendar-year entity, 2026 amounts will appear as comparatives in the first 2027 financial statements, so data and policies cannot wait until 2027.