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The International Accounting Standards Board issued IFRS 18 Presentation and Disclosure in Financial Statements in April 2024. It replaces IAS 1 and applies to annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. IFRS 18 does not change how revenue, assets or liabilities are recognised or measured. It changes how results are presented and explained — and the income statement will look different for almost every IFRS reporter.
Three new categories in the statement of profit or loss
Income and expenses are classified into operating, investing and financing categories, alongside income taxes and discontinued operations.
| Category | What it contains | Typical examples |
|---|---|---|
| Operating | The residual category: everything not classified elsewhere, including the results of the main business activities | Revenue, cost of sales, selling and administrative expenses, impairment of receivables |
| Investing | Returns from investments in associates and joint ventures, cash and cash equivalents, and assets that generate returns largely independently of other resources | Share of profit of associates, rental income on investment property, dividends received, interest on deposits |
| Financing | Income and expenses on liabilities from raising finance, and interest on other liabilities such as leases and pensions | Interest on bank loans and bonds, interest on lease liabilities, unwinding of discounts on provisions |
Companies whose main business is investing or providing finance — banks, insurers and investment entities — classify some of these items in operating instead. Whether a company has such a "specified main business activity" is a matter of judgement, and should be documented.
New required subtotals
Two subtotals become mandatory:
- Operating profit or loss — for the first time, a defined and comparable measure across IFRS reporters;
- Profit or loss before financing and income taxes.
The statement of cash flows is aligned too. Under the amendments to IAS 7, the indirect method starts from operating profit, and the policy choices for interest and dividends largely disappear: for most companies, interest and dividends paid are financing cash flows, while interest and dividends received are investing cash flows.
Management-defined performance measures
Many companies talk to investors and lenders about "adjusted EBITDA", "underlying profit" or "operating profit before exceptional items". Where such a subtotal of income and expenses is used in public communications outside the financial statements to convey management's view of performance, it is a management-defined performance measure (MPM). For each MPM, a single note must:
- describe the measure and explain why it provides useful information;
- explain how it is calculated;
- reconcile it to the most directly comparable IFRS subtotal, showing the income tax and non-controlling interest effect of each reconciling item.
Because the note sits inside the financial statements, MPMs fall within the scope of the audit. Measures that are not built from income and expenses, such as free cash flow, are outside the definition.
Aggregation and disaggregation
IFRS 18 sets clear principles for grouping information. The primary statements give a structured summary; the notes give the detail. Items are grouped by shared characteristics and split out where they differ and the information is material. Vague labels such as "other expenses" are discouraged: use a more descriptive label, or explain what the amount contains.
Operating expenses may be presented by nature, by function or a mix of both. If any are presented by function — for example "cost of sales" and "administrative expenses" — a single note must disclose five specified expenses: depreciation, amortisation, employee benefits, impairment losses (and reversals) and inventory write-downs (and reversals), with the amount included in each functional line.
Transition and comparatives
IFRS 18 is applied retrospectively. In the first year, comparatives are restated and the company discloses, for the comparative period, a reconciliation of each line in the statement of profit or loss between the amounts previously reported under IAS 1 and the restated IFRS 18 amounts. Annual financial statements issued before adoption should already describe the expected effect of the new standard.
What it means in our four jurisdictions
| Jurisdiction | Position |
|---|---|
| Pakistan | IFRS Accounting Standards apply once ICAP recommends them and SECP notifies them in the Official Gazette under the Companies Act 2017. Check the current notification status of IFRS 18 for your company. Companies reporting under IFRS for SMEs or the AFRS for SSEs are not directly affected. |
| United Arab Emirates | IFRS is the reporting basis for Corporate Tax and is required for DIFC and ADGM entities, so full-IFRS reporters apply IFRS 18 from 2027. |
| United Kingdom | The UK Endorsement Board adopted IFRS 18 for use in the UK in December 2025. Companies reporting under FRS 102 are not directly affected. |
| Saudi Arabia | SOCPA adopted IFRS 18 in December 2024, with some local additions, and permits early adoption. |
Read more about the Pakistani framework in Which financial reporting framework applies to your company?
What to do now
- Map your chart of accounts to the operating, investing and financing categories
- Decide whether you have a specified main business activity, and document the judgement
- Prepare a draft 2026 income statement in IFRS 18 format alongside your IAS 1 accounts
- List every "adjusted" measure used in board packs, investor material and loan covenants, and identify which are MPMs
- Check whether you present expenses by function, and set up data capture for the five specified expenses
- Review covenant definitions with lenders, since operating profit may move
- Update accounting policies, consolidation packs and ERP reporting
- Brief the board and audit committee, and agree the approach early with your auditors
How Veridian can help
IFRS 18 is a focus of our technical publication programme. Our Accounting & Financial Reporting practice carries out impact assessments, maps charts of accounts, prepares pro forma restated statements and drafts MPM disclosures for Pakistani, UAE, UK and Saudi reporters, while our Corporate Advisory practice helps align covenants and investor reporting. See our jurisdictions page for how we work across borders.
Want to see your 2026 income statement in IFRS 18 format before your auditors do? Book a consultation and talk to us.
This article reflects our understanding as at October 2026. Adoption and endorsement status can change — check the latest SECP, ICAP, UKEB and SOCPA announcements, or ask us, before acting.
Frequently asked questions
When does IFRS 18 take effect?
For annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. Because it applies retrospectively, a December year-end company will restate its 2026 comparatives in its first IFRS 18 financial statements.
Does IFRS 18 change reported profit?
No. Recognition and measurement are unchanged, so net profit stays the same. What changes is the structure of the income statement, the new operating profit subtotal, the classification of items and the disclosures in the notes.
Will our "adjusted" performance measures be audited?
If a measure is a subtotal of income and expenses used in public communications to show management's view of performance, it is a management-defined performance measure. Its disclosure, including a reconciliation to an IFRS subtotal, goes in the notes and so falls within the scope of the audit.
This guide is general information based on the law as we understand it on the date shown, not advice for your situation. Tax rules change often — please speak to us before acting on it. See our disclaimer.