Why IFRS 18 Exists
IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 and is the IASB's response to a long-standing complaint from investors: income statements prepared under IFRS were too inconsistent to compare across companies, because "operating profit" and similar subtotals meant something different in every set of accounts. IFRS 18 doesn't change how items are measured — it changes how the income statement is structured and what has to be disclosed alongside it.
Three Mandatory Income Statement Categories
IFRS 18 requires all income and expenses to be classified into one of three categories: operating, investing, and financing. Every entity must present an operating profit subtotal and a profit-before-financing-and-tax subtotal — both new, defined requirements that didn't formally exist under IAS 1. The intent is that "operating profit" finally means the same thing from one set of IFRS financial statements to the next.
Management-Defined Performance Measures
This is the change most likely to catch finance teams off guard. If your business publicly reports a non-IFRS subtotal — an adjusted operating profit, an underlying EBITDA, anything management uses in investor communications, earnings calls, or the annual report narrative — IFRS 18 requires it to be disclosed as a management-defined performance measure (MPM) in a single note to the financial statements, with a reconciliation back to the nearest IFRS-specified subtotal and an explanation of why it's useful.
In effect, IFRS 18 brings adjusted profit measures inside the audited financial statements for the first time, rather than leaving them in an unaudited narrative section.
Effective Date and Transition
IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027, with early adoption permitted. It must be applied retrospectively, which means comparative figures for the prior year also need to be restated on the new basis — in practice, businesses need to be planning their restated income statement structure well before the effective date, not after it.