Financial statement presentation under IFRS 18

IFRS 18, which replaces IAS 1 and is effective for annual periods beginning on or after 1 January 2027, fundamentally changes how the income statement is structured by requiring defined categories (operating, investing, financing) and mandatory subtotals such as operating profit, and by formalizing disclosure of management-defined performance measures (MPMs) with reconciliations to the nearest IFRS subtotal, this directly affects SaaS companies that habitually publish adjusted EBITDA, ARR-adjusted, or other non-GAAP metrics, since those metrics will now require far more rigorous, audited disclosure discipline than before.

Which non-GAAP or management performance measures (e.g., adjusted EBITDA, ARR) does management currently publish, and how would they map to IFRS 18's defined subtotals? How will the current P&L structure translate into the mandatory operating, investing, and financing categories required under IFRS 18? Given the 2027 effective date, has a gap analysis and system readiness assessment begun, and would earlier adoption benefit an upcoming fundraising or listing process?

1. Note the effective date: IFRS 18 applies for annual periods beginning on or after 1 January 2027 (with earlier application permitted), so entities should begin gap analysis and system readiness well ahead of transition rather than treating it as a distant concern.
2. Classify each income and expense item into one of the defined categories (operating, investing, financing, income tax, and discontinued operations), based on the nature of the underlying activity rather than historical income statement labeling habits.
3. Present the required new subtotals, including operating profit, as defined by the standard, ensuring consistency of classification period over period.
4. Identify whether any measure the entity publicly communicates (e.g., in earnings releases, investor presentations, or the annual report) meets the definition of a management-defined performance measure (MPM), broadly, a subtotal of income and expenses used in public communications outside the financial statements that is not specifically required or defined by IFRS.
5. Where an MPM exists, it must generally be disclosed within a single note in the financial statements with a reconciliation to the most directly comparable IFRS-defined subtotal, along with an explanation of how it is calculated and why it provides useful information.
6. Reassess systems, chart of accounts, and reporting templates for the ability to produce the new mandatory categorization and subtotals, since this is a presentation and disclosure standard, not a recognition or measurement standard.

IFRS 18 is not a measurement standard: it does not change how assets, liabilities, income, or expenses are recognized or measured under other standards (e.g., revenue continues to be measured under IFRS 15). Its impact is entirely on classification (which category an item sits in), aggregation and disaggregation (what is shown as a separate line versus combined), and labeling and location (where subtotals and MPM reconciliations appear). Entities should map every existing income statement line item to the new categories and required subtotals now, and quantify what its currently published adjusted metrics (e.g., adjusted EBITDA) would look like when reconciled under the new required disclosure format.

Disclose (once adopted): income and expenses classified into the operating, investing, and financing categories with the required subtotals (including operating profit) presented on the face of the statement of profit or loss; a single note disclosing each management-defined performance measure, its calculation, a reconciliation to the most directly comparable IFRS-defined subtotal, the income tax and non-controlling interest effects of reconciling items, and an explanation of why the measure provides useful information to users; enhanced guidance on the aggregation and disaggregation of information across the primary statements and notes; comparative information restated to the new presentation on transition.

• Assuming IFRS 18 is a minor relabeling exercise with no real preparation needed, when in fact it requires systematic reclassification of every income statement line and new disclosure infrastructure
• continuing to publish adjusted metrics like '
• Adjusted EBITDA excluding ESOP charges'
• in earnings materials without building the required reconciliation and rationale disclosure into the financial statement notes
• leaving chart-of-accounts and reporting system changes until shortly before the mandatory effective date instead of starting gap analysis early
• overstating the standard'
• s scope by assuming it changes revenue or expense recognition and measurement, when its impact is confined to presentation, classification, and disclosure
• failing to identify all externally communicated subtotals that meet the MPM definition, particularly informal metrics used in investor decks that may not be flagged by the standard finance close process.