Key takeaways
- IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 for annual periods beginning on or after 1 January 2027, applied retrospectively, with early application permitted.
- Income and expenses are classified into five categories — operating, investing, financing, income taxes and discontinued operations — with two new required subtotals.
- Management-defined performance measures (MPMs), such as “adjusted EBITDA”, must be disclosed in one note and reconciled to an IFRS subtotal.
- New aggregation and disaggregation rules, plus related IAS 7 amendments, change how many companies present expenses and cash flows.
For decades, IAS 1 gave companies wide freedom in how they presented the income statement. Two companies in the same industry could define “operating profit” differently, or not present it at all, and many published alternative performance measures with little explanation. Investors asked for more comparable, better-structured information. The IASB’s response is IFRS 18, issued in April 2024 — the most significant change to the face of financial statements in many years.
IFRS 18 does not change recognition or measurement: revenue, assets and liabilities are measured exactly as before. It changes presentation and disclosure. But because it changes the most-read lines of the accounts, preparation should start well before the first reporting period — comparatives for 2026 must be restated for calendar-year companies.
1. Five categories in the statement of profit or loss
| Category | What it contains (for a typical non-financial company) |
|---|---|
| Operating | All income and expenses not classified in another category — the residual category, including results of main business activities and most other income and expenses, including volatile or unusual items |
| Investing | Income and expenses from investments in associates and joint ventures (equity-accounted), cash and cash equivalents, and other assets that generate a return individually and largely independently of other resources |
| Financing | Income and expenses from liabilities arising from transactions that involve only the raising of finance (e.g., interest on loans), plus interest and the effects of changes in interest rates on other liabilities (e.g., lease liabilities, unwinding of discount on provisions) |
| Income taxes | Tax expense or income within the scope of IAS 12 |
| Discontinued operations | As required by IFRS 5 |
Entities with specified main business activities — such as banks that lend or entities that invest in assets as a main business — classify some income and expenses that would otherwise be investing or financing in the operating category. Groups should assess this at the reporting-entity level.
2. New required subtotals
IFRS 18 requires two new subtotals: operating profit or loss and profit or loss before financing and income taxes (with an exemption from the latter for certain entities with specified main business activities). Together with profit or loss, these give investors a consistent starting point for comparing companies.
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An IFRS 18 income statement with the new required subtotals (illustrative, BDT million)
View the data behind this chart
| Step | Amount | Effect |
|---|---|---|
| Revenue | 1,000 | Starting point |
| Cost of sales | −700 | Adverse |
| Operating expenses | −150 | Adverse |
| Operating profit | 150 | Subtotal |
| Investing income | +20 | Favourable |
| Before financing & tax | 170 | Subtotal |
| Financing expenses | −40 | Adverse |
| Income tax | −32 | Adverse |
| Profit for year | 98 | Result |
Illustrative figures. Actual classification depends on the nature of each income and expense and on the entity’s main business activities. Foreign exchange differences are classified in the same category as the income and expenses from the items that gave rise to them, subject to specific rules.
3. Management-defined performance measures
Many companies report measures such as adjusted EBITDA, underlying profit or profit before exceptional items. Under IFRS 18, an MPM is a subtotal of income and expenses that the entity uses in public communications outside the financial statements to communicate management’s view of an aspect of financial performance, and that is not a subtotal specified by IFRS. MPMs must be disclosed in a single note, including:
- A description of what the measure communicates and why management considers it useful;
- How it is calculated, and a reconciliation to the most directly comparable IFRS-specified subtotal;
- The income tax effect and the effect on non-controlling interests for each reconciling item;
- Explanations of any changes in how the measure is calculated.
Some simple subtotals — such as gross profit, and operating profit before depreciation, amortisation and specified impairments (a common definition of EBITDA) — are listed as not being MPMs. The new note brings these measures into the audited financial statements, which raises the bar for consistency between investor presentations, board packs and the annual report. Finance teams that maintain a KPI dictionary will find this easier.
4. Aggregation, disaggregation and operating expenses
IFRS 18 introduces principles for grouping items based on shared characteristics, and requires disaggregation when items have dissimilar characteristics and the information is material. Labels such as “other expenses” should be used only when no more informative label is available, with disclosure of what they contain.
Operating expenses are presented by nature (raw materials, employee benefits, depreciation), by function (cost of sales, selling, administration) or by a mixture, using whichever gives the most useful structured summary. Entities presenting by function must disclose in a single note five specified expenses by nature: depreciation, amortisation, employee benefits, impairment losses (and reversals) and inventory write-downs (and reversals), together with the line items in which they are included.
5. Consequential changes to IAS 7
- The indirect method starts from operating profit or loss, rather than from profit before tax.
- For entities without specified main business activities, interest paid is classified as financing, and interest and dividends received as investing; dividends paid are financing. The previous choices are removed.
The details are discussed in my IAS 7 guide.
6. Transition and timeline
| Milestone | Calendar-year company |
|---|---|
| Effective date | Annual periods beginning on or after 1 January 2027 |
| First IFRS 18 annual financial statements | Year ending 31 December 2027 |
| Comparative period restated | Year ending 31 December 2026 |
| Interim reports | Specific transition disclosures in the first year of application |
Jurisdictions adopt IFRS through their own processes. In Bangladesh, companies should follow the standards as adopted and notified by the Financial Reporting Council (FRC), and check the FRC’s position on IFRS 18 and its effective date before planning implementation.
7. How to prepare now
- Map the chart of accounts to the five categories, identifying accounts that need splitting (for example, foreign exchange and interest accounts).
- Assess main business activities for each reporting entity and for the group.
- Inventory existing MPMs used in investor and lender communications, and decide which to keep.
- Decide expense presentation (nature, function or mixed) and gather the by-nature data needed for disclosure.
- Update ERP reporting structures, consolidation tools and management dashboards to produce the new subtotals.
- Prepare restated 2026 comparatives and talk to auditors and lenders early — covenant definitions may refer to “operating profit”.
Standards referenced in this article
IAS and IFRS are one body of standards — IFRS Accounting Standards, issued by the IASB. Standards issued before 2001 keep their IAS numbers and remain fully in force unless replaced. See the full IFRS & IAS standards list for every number and replacement.
| Standard | Title | Status | IFRS # & IAS # link |
|---|---|---|---|
| IFRS 5 | Non-current Assets Held for Sale and Discontinued Operations | In force | Replaced IAS 35 |
| IFRS 18 | Presentation and Disclosure in Financial Statements | Effective 1 Jan 2027 | Replaces IAS 1 |
| IAS 1 | Presentation of Financial Statements | In force until replaced by IFRS 18 (2027) | IFRS 18 & IAS 1 |
| IAS 7 | Statement of Cash Flows | In force (amended by IFRS 18 from 2027) | No IFRS number — IAS 7 is the IFRS standard |
| IAS 12 | Income Taxes | In force | No IFRS number — IAS 12 is the IFRS standard |
Frequently asked questions
When does IFRS 18 become effective?
For annual reporting periods beginning on or after 1 January 2027, applied retrospectively with comparatives restated. Early application is permitted. Local adoption depends on each jurisdiction's endorsement process.
Does IFRS 18 change how revenue or assets are measured?
No. IFRS 18 changes presentation and disclosure — mainly the structure of the statement of profit or loss, management-defined performance measures and aggregation — but not recognition or measurement.
Is EBITDA a management-defined performance measure?
It depends on the definition. IFRS 18 lists operating profit before depreciation, amortisation and specified impairments as a subtotal that is not an MPM. An adjusted EBITDA with other adjustments used in public communications would generally be an MPM requiring disclosure.
Conclusion
IFRS 18 gives investors a consistent income statement structure, clear subtotals and disciplined disclosure of the adjusted measures companies love to use. Measurement does not change, but systems, mappings, KPIs and communications will. Finance teams that start mapping accounts, cataloguing MPMs and engaging auditors and lenders now will make the 2027 transition routine rather than rushed.
Written by Liakat Hossain
Finance and accounts professional with experience in FP&A, SAP FICO, Power BI, internal control, reporting, audit, tax, VAT and export-oriented business operations.
This article is original educational content based on professional finance practice. Real-project examples are anonymized, and scenario figures are identified as model outputs rather than guaranteed results.