IFRS 18: a new standard for financial reporting

Last month, the International Accounting Standards Board (IASB) has issued a new accounting standard designed to improve the transparency and comparability of financial performance reporting. IFRS 18 will introduce significant changes to how companies present and disclose information in their financial statements.

The new standard aims to give investors a clearer understanding of companies’ financial performance, making it easier to compare results between organisations and support more informed investment decisions.

Replacing IAS 1 Presentation of Financial Statements, IFRS 18 represents one of the most significant changes to financial performance reporting since IFRS Accounting Standards were first introduced more than 20 years ago.

The standard will apply to all companies preparing financial statements in accordance with IFRS Accounting Standards, with mandatory application for annual reporting periods beginning on or after 1 January 2027.

What are the key changes introduced by IFRS 18?

The new standard introduces three principal areas of change, focusing on the structure of the income statement, the disclosure of management-defined performance measures and the way financial information is grouped and presented.

1. A more consistent structure for the income statement
2. Greater transparency around management-defined performance measures
3. Improved grouping and disclosure of financial information

You can access the standard and the supporting materials on the IFRS website.

1. A more consistent structure for the income statement

One of the most significant changes is the introduction of three defined categories for classifying income and expenses:

• Operating: Income and expenses arising from a company's main business activities, together with other items not classified elsewhere.
• Investing: Income and expenses from investments, such as returns from investment properties or equity-accounted associates.
• Financing: Income and expenses associated with financing activities, including interest on borrowings and certain other liabilities.

IFRS 18 also introduces two required subtotals in the statement of profit or loss: operating profit or loss and profit or loss before financing and income taxes.

The new requirements aim to provide a more consistent framework, giving investors a clearer and more comparable view of business performance.

2. Greater transparency around management-defined performance measures

Many organisations use their own performance measures, often referred to as alternative performance measures (APMs) or non-GAAP measures, to communicate financial performance to investors and other stakeholders.

IFRS 18 introduces requirements for companies to disclose information about certain measures, referred to as management-defined performance measures (MPMs). These disclosures will need to explain how the measures are calculated, why they provide useful information about the company's performance and how they reconcile to the most directly comparable IFRS-defined measures. The relevant disclosures will be included in a single note within the financial statements and will be subject to audit.

This is intended to improve consistency and transparency, helping investors better understand how management assesses business performance.

3. Improved grouping and disclosure of financial information

The third area of change focuses on how information is organised and presented within financial statements.

IFRS 18 introduces enhanced guidance on the aggregation and disaggregation of financial information, helping companies determine which information should be presented in the primary financial statements and which should be included in the accompanying notes.

It also introduces requirements to improve the transparency of operating expenses, including how expenses are classified and disclosed.

The objective is to ensure financial statements provide an appropriate level of detail, avoiding information being either overly summarised or unnecessarily fragmented.

What does IFRS 18 mean for finance teams?

Although the mandatory implementation date is several years away, finance teams should begin considering the potential implications of the new standard.

The extent of the changes will depend on an organisation's existing reporting practices, financial structures and systems. 

Preparing for the transition

With IFRS 18 applying from 1 January 2027, organisations have time to assess the requirements and plan their approach to implementation.

Early preparation will help finance teams understand the impact on existing reporting processes, identify potential system changes and ensure that the necessary data and controls are in place.

For many businesses, this will be an opportunity to review not only their statutory reporting processes but also the wider effectiveness of their financial reporting environment.

At Concentric Solutions, we understand the challenges organisations face in managing complex financial reporting requirements. 

If your organisation is reviewing its financial reporting landscape in preparation for IFRS 18, our team can help you assess your existing OneStream environment and consider the steps needed to support future reporting requirements. Get in touch with our team for an initial consultation: