IFRS 18
WHAT DECISION-MAKERS NEED TO KNOW
A NEW PRESENTATION STANDARD
IFRS 18 replaces IAS 1 and reshapes how performance is Communicated highlighting information on Statement of Profit and Loss.
THREE MAJOR REFORMS
- Improved grouping and labelling.
- Defined profit subtotals.
- Management defined performance measures.
BUSINESS-WIDE READINESS
Finance reporting, investor communications and comparative figures may need changes.
PILLARS OF IFRS 18
1.STRUCTURE
FIVE PROFIT OR LOSS CATEGORIES
- Operating
- Discontinued Operations
- Financing
- Investing
- Income Taxes
TWO SPECIFIED NEW SUBTOTALS
- Operating Profit
- Profit before Financing and Income Taxes.
2.TRANSPARENCY
MANAGEMENT-DEFINED PERFORMANCE MEASURES
- Explains how the management views the company’s financial performance.
- Subtotals of income and expenses that the company applies, other than those specified in IFRS 18.
- Disclosures explaining qualifying management defined performance measures and reconcile them to IFRS totals
3.CLARITY
Enhanced aggregation, disaggregation and labelling help make material information easier to find.
IAS 1 VS IFRS 18
| IAS 1 | VS | IFRS 18 |
|---|---|---|
| No five-category framework | Profit or loss categories | Five defined categories |
| No, universally defined subtotal | Operating profit | Specified subtotal required |
| Not a specified subtotal | Profit before financing & tax | Specified subtotal required |
| No dedicated MPM note requirement | Management-defined measures | MPM disclosures and reconciliations |
| General materiality / presentation guidance | Grouping and labelling | Enhanced aggregation / disaggregation |
| Existing IAS 1 reporting | Transition | Retrospective application, comparatives |
ILLUSTRATIVE INCOME STATEMENT: BEFORE AND AFTER
| Line item | IFRS 1 | IFRS 18 |
|---|---|---|
| Revenue | 100 | 100 |
| Cost of Sales | 30 | 30 |
| Other Operating Expenses | 15 | 15 |
| Operating Profit | Option: 55 | 55 |
| Investment Income | (5) | (5) |
| Profit before financing and income taxes | Not required: 60 | 60 |
| Finance costs | (8) | (8) |
| Profit before tax | 52 | 52 |
| Income tax | (5) | (5) |
| Profit for the year | 47 | 47 |
IMPACT IN BUSINESSES
- 1FINANCE & REPORTING
Standardized categories, updates on disclosures, clearer presentation of financial performance
- 2COMPARABILITY
Comparison of financial performance across companies made easier through reclassification of income/expenses
- 3CREDIBILITY
Transparent explanations and reconciliations for qualifying Management defined Performance Measures.
- 4STAKEHOLDERS
Explain changed KPIs to boards and investors improve analysis, forecasting and discussions
KEY TAKEAWAYS
- IFRS 18 is primarily a presentation and disclosure reform—not a new measurement basis.
- Its effectiveness lies in improved comparability, transparency and communication.
- Applicable for annual reporting periods beginning on or after 1 January 2027. Companies may elect to adopt IFRS 18 prior to its mandatory effective date.
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Author:
Mohamed Rila Sirajudeen Fazul Mohamed (Tax Agent)
Bazaar Accounting & Management Advisors LLC
