Why you should start preparing now for IFRS 18

In April 2024, the International Accounting Standards Board published IFRS 18 Presentation and Disclosure in Financial Statements, a new financial statements presentation standard to replace IAS 1 Presentation of Financial Statements. 

IFRS 18 implementation projects may involve some, or all, of the following:

• System changes to properly tag income and expenses to the appropriate income and expense categories in the statement of profit or loss – a complex exercise for diverse groups running multiple financial reporting systems, especially if some entities have specified main business activities and others don’t.
• A review of how financial information is aggregated, disaggregated and labelled (this could affect both the statement of profit or loss and the statement of financial position).
• Identifying whether the entity uses management-defined performance measures and developing new systems, processes and controls to produce the new disclosures required in the financial report.
• Identifying contracts impacted by profit measures and resetting and renegotiating targets based on the new mandatory subtotals – operating profit or loss, and profit before financing and income tax (for entities without specified main business activities). Amongst others, bank covenants and employee KPIs could be affected.

We strongly encourage entities to get started. If you need help, please reach out to our IFRS & Corporate Reporting experts.

When is IFRS 18 effective?

IFRS 18 is effective for annual periods beginning on or after 1 January 2027 (for-profit entities) and 1 January 2028 (private and public sector not-for-profit entities and superannuation entities applying AASB 1056 Superannuation Entities). While the latter have an extra year to implement the new standard, for-profit entities have less than two years until the IFRS 18 application date and less than one year from the date from which retrospective restatement applies.

Implementation dates

For the first time, IFRS 18 will apply to annual and half-year reporting periods, assuming a twelve-month financial year, as shown in the table below.

Retrospective restatement

IFRS 18 must be applied retrospectively. As the changes from IAS 1 primarily affect the statement of profit or loss, profit or loss information will have to be restated for the comparative annual and interim periods. However, IFRS 18 could also affect other primary financial statements such as the statement of financial position, for example, where entities change their level of aggregation and disaggregation.

IFRS 18 contains the same rules as IAS 1 regarding the ‘third balance sheet’, or statement of financial position at the beginning of the preceding period. This is required if an entity retrospectively restates items that have a material effect on the statement of financial position as at the beginning of the comparative period. Entities should, therefore, be working towards completing IFRS 18 implementation projects by 31 December 2025 in order to be ready for a 1 January 2026 ‘opening balance sheet’ date.

Transition disclosures

Usually, retrospective restatement caused by initially applying a new IFRS® Accounting Standard requires disclosure about the amount of the adjustment for each financial statement line item affected (IAS 8 Basis of Preparation of Financial Statements¹, paragraph 28(f)). This disclosure is not required when there is retrospective restatement as a result of first applying IFRS 18.

1: IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is renamed to IAS 8 Basis of Preparation of Financial Statements as a consequence of IFRS 18

However, in the annual financial statements of the period during which IFRS 18 is first applied (e.g. the year ending 31 December 2027), reconciliations must be disclosed for each line item in the statement of profit or loss in the comparative period to explain and quantify differences between:

• The restated amounts applying IFRS 18, and
• The amounts previously presented applying IAS 1.

Implications for half-years

When preparing condensed financial statements for a half-year reporting period, IAS 34 Interim Financial Reporting, paragraph 10, requires an entity to ‘look back’ and include headings and subtotals that were shown in the entity’s most recent annual financial statements. This is not possible the first time an entity prepares half-year financial statements applying IFRS 18.

Similar transition reconciliations are also disclosed in the half-year accounts for the comparative statement of profit or loss as described above.

What are the key changes in IFRS 18?

IFRS 18 introduces changes in five areas:

• Income and expenses will have to be classified into one of five categories – investing, financing, operating, income taxes and discontinued operations. ‘Operating’ is a residual category if income and expenses are not classified into any of the other four categories. Investing and financing categories are defined and are not the same as the categories currently used in the statement of cash flows.
• Two new mandatory subtotals – operating profit or loss, and profit or loss before financing and income taxes (which is the sub-total of operating profit or loss, and all income and expenses classified as investing).
• Stricter requirements regarding labelling of items in the financial statements and aggregation and disaggregation.
• Disclosures about management-defined performance measures.
• Consequential amendments to other IFRS® Accounting Standards as a result of IFRS 18.

As noted above, entities should not underestimate the work involved preparing for the adoption of IFRS 18.

More information

During 2025, Corporate Reporting Insights will be taking a deep dive into IFRS 18 in order to demystify some of its complexities. Stay tuned.

Need help

Implementing new accounting standards can be challenging. Reach out to our team for help with understanding the latest requirements in IFRS 18.