A new accounting standard that aims to meet investor demand for better, more comparable information about companies’ financial performance has been published by the International Accounting Standards Board (IASB).

IFRS 18 Presentation and Disclosure in Financial Statements is set to replace IAS 1 Presentation of Financial Statements. Its introduction will affect all entities reporting under IFRS Accounting Standards, with varying levels of impact.

IFRS 18 will be effective for reporting periods beginning on or after 1 January 2027, with earlier application permitted. Comparative information in financial statements will require restating.

The adoption of IFRS 18 for use in the UK is subject to endorsement by the UK Endorsement Board (UKEB), expected in Q4 2025 at the earliest. 

Key new requirements

In addition to existing requirements brought forward from IAS 1, IFRS 18 contains three key new requirements, focusing on the statement of profit or loss (SOPL) and disclosures around financial performance.

The first of these introduces two new defined subtotals to be presented in the SOPL – operating profit or loss and profit or loss before financing and income tax. In applying these new subtotals, income and expenses will be classified into three new defined categories – operating, investing and financing – to provide a consistent structure to the SOPL. 

The second new requirement is additional disclosures on specified alternative performance measures, termed management-defined performance measures (MPMs). Subtotals of income and expenses used in public communications to communicate management’s view of financial performance, such as adjusted operating profit, will be in scope of this new requirement. 

For MPMs in scope, a single disclosure note is required to explain why the MPM is reported, how it is calculated, any changes to the MPM and a reconciliation back to the most directly comparable IFRS-defined subtotal. As the disclosure note will form part of the financial statements, this information will also be subject to audit. 

Finally, IFRS 18 introduces enhanced requirements on the grouping of information in the financial statements, i.e. aggregation and disaggregation. This includes requirements for presenting and disclosing operating expenses, plus guidance to determine if information should be included in the primary financial statements or disclosed in the notes. IFRS 18 also includes requirements to help companies determine meaningful labels and information about items in the SOPL labelled as ‘other’.

Limited consequential amendments have been announced to other IFRS Accounting Standards, including to IAS 7 Statement of Cash Flows. 

Commenting on the new standard, Sally Baker, ICAEW’s Head of Corporate Reporting Strategy, says: “ICAEW is pleased with the proportionate and pragmatic approach taken by the IASB in IFRS 18 – carrying forward most aspects of IAS 1 while making targeted changes that will improve the information communicated to investors, such as the requirement to present new subtotals in the SOPL and disclosures of MPMs.

“We remain concerned, however, that in the definition of MPMs the reference to subtotals ‘used in public communications outside financial statements’ is too broad – a point that we raised during the consultation process.”

The Corporate Reporting Faculty will be examining the new standard in detail over the coming months and producing guidance on the new requirements to support members with implementation.