The new standard, IFRS 18, introduces significant changes in how entities present their financial performance. Its application is mandatory for annual reporting periods beginning on or after 1 January 2027. The objective of the standard is to enhance the quality of financial reporting through clearer, more consistent, and more transparent presentation of information on:

• assets
• liabilities
• equity
• income and expenses

MSFI 18 does not change the method of measurement (recognition and valuation), but exclusively the manner of presentation and disclosure.

 

Key changes introduced by IFRS 18

IFRS 18 brings several important updates, including:

1. Newly defined subtotals
The standard introduces two new mandatory subtotals:

• operating profit
• profit before financing and income tax

2. Categories in the statement of profit or loss
IFRS 18 requires a clear classification of income and expenses into the following categories:

• Operating – a residual category that includes all income and expenses not classified elsewhere. It covers:
  • core business activities
  • ancillary activities
• Investing – this category includes, among others:
  • share of profit of associates and joint ventures
  • income and expenses from cash and cash equivalents
  • income from assets that generate returns independently of other resources
    Note: certain entities (e.g. holding companies and financial institutions) are subject to specific exceptions.
• Financing – includes income and expenses related to financing activities
• Income tax – includes:
  • tax expense/income
  • related foreign exchange differences
• Discontinued operations – in line with existing standards (e.g. IFRS 5)

3. Improved presentation and connectivity of information
The standard emphasizes:

• cross-referencing between primary statements and notes
• clearer linkage between amounts disclosed in the notes and the financial statements

4. Aggregation and disaggregation of information
IFRS 18 introduces clear rules for:

• aggregation (grouping)
• disaggregation (separating)

Key principles:

• items are grouped based on shared characteristics
• items are disaggregated when the information is material
• information must not be obscured

Special attention is given to the use of the label “other”, which should only be applied when no more precise description is available. These subtotals provide users of financial statements with better insight into operating performance and improve comparability across entities.

5. Management Performance Measures (MPMs)
IFRS 18 introduces mandatory disclosures of so-called MPMs (Management Performance Measures). These are:

• subtotals of income and expenses
• used in communication with investors
• not defined by IFRS standards

The aim is to increase transparency and improve understanding of how management evaluates business performance.

Management Performance Measures must be presented in a single note, together with a reconciliation to IFRS amounts.

 

More complex areas of application
The standard introduces additional requirements for more complex scenarios, including:

• classification of derivatives and hybrid contracts
• treatment of foreign exchange differences
• specific cases related to financial instruments

As a general rule, foreign exchange differences are classified in the same category as the related transactions, unless doing so would involve undue cost or effort.

 

Comparison with existing requirements (IAS 1)
Compared to the current standard, IFRS 18:

• introduces mandatory subtotals
• reduces inconsistencies in presentation
• improves comparability across entities

 

Practical implications for companies
The implementation of IFRS 18 will require:

• adjustments to financial statements
• redefinition of certain performance indicators
• possible reclassification of comparative information (e.g. for 2026)

The application of the standard will result in greater transparency, improved comparability, and higher-quality information for investors and other users. The standard is specifically focused on improving the structure of the income statement.

IFRS 18 represents an important step toward modernizing financial reporting. While its implementation may require certain adjustments, the long-term benefits—clearer and more reliable presentation of financial position and performance—significantly outweigh the initial challenges.

If you have any questions or require support in preparing for the implementation of IFRS 18, please feel free to contact our local experts . Our team is at your disposal to analyze the impact of IFRS 18 on your business, adapt your financial reporting to the new requirements, and provide advisory support and practical implementation of the standard. Feel free to contact us with confidence and ensure timely preparation for the upcoming changes.