IFRS 18 will change how financial institutions present their financial performance, including the definition of operating profit and the rules governing the disclosure of measures used in market communications. Although the standard will apply from 2027, comparative information for 2026 will need to be prepared under the new requirements. Find out which actions should be initiated now.

On 13 February 2026, the European Commission adopted Regulation (EU) 2026/338, incorporating IFRS 18, Presentation and Disclosure in Financial Statements, into EU law. The Regulation was published in the Official Journal of the European Union on 16 February 2026. The new standard replaces IAS 1 and applies to financial years beginning on or after 1 January 2027, with earlier application permitted.

The effective date may appear distant, but this is misleading. IFRS 18 is to be applied retrospectively. Therefore, for entities whose financial year corresponds to the calendar year, comparative information for 2026 will need to be presented using the new format. Entities that begin mapping line items only in 2027 will have to reconstruct the previous year under pressure from the financial reporting timetable.

In addition, supervisory authorities expect certain disclosures to be made before the standard is applied for the first time, as discussed below. Consequently, 2026 should be treated as a year of preparation rather than waiting.

This article concerns entities preparing financial statements in accordance with IFRS Accounting Standards. Financial reporting under the Polish Accounting Act and Polish accounting standards remains unchanged, which is particularly relevant to cooperative banks applying national accounting regulations.

A change in presentation, not measurement

IFRS 18 does not change the recognition or measurement requirements for assets, liabilities, income and expenses. Net profit calculated under IFRS 18 will be the same as under IAS 1. What changes is how that result is presented and explained.

The main implementation burden will be operational and systems-related, affecting the chart of accounts, mappings in accounting systems, management reporting and market communications. However, the standard also requires accounting policy decisions, including decisions concerning the classification of financing expenses and income and expenses arising from cash and cash equivalents. Some choices therefore cannot be delegated exclusively to systems teams.

In its public statement of 17 February 2026, Reshaping Performance, ESMA called on issuers to implement the standard in a timely manner and highlighted that the changes will affect IT systems, internal controls, communication strategies and the tagging of financial statements in ESEF format.

The statement is also addressed to supervisory boards, audit committees and statutory auditors. ESMA announced that, together with national supervisory authorities, it would monitor the transparency of disclosures concerning the implementation process.

New structure of the statement of profit or loss

The statement of profit or loss will be divided into five categories:

• operating;
• investing;
• financing;
• income taxes;
• discontinued operations.

Operating profit or loss will become a mandatory subtotal for all entities. A second new subtotal, profit or loss before financing and income taxes, will generally also be mandatory.

An exception applies to entities that provide financing to customers as a specified main business activity and that, as an accounting policy choice, classify within the operating category income and expenses arising from liabilities unrelated to the provision of financing to customers.

Previously, IAS 1 gave entities considerable flexibility in designing the structure of the statement. As a result, the “operating profit” of two companies in the same industry could be calculated using different definitions, meaning that an analyst comparing them directly was comparing figures that were not genuinely comparable.

IFRS 18 standardises the classification architecture and significantly improves comparability between entities with similar business models. However, the composition of operating profit will still depend on the nature of an entity’s activities.

One important qualification should be noted by users of financial statements: the operating category is residual in nature. It is not synonymous with core, recurring or “adjusted” profit and may therefore include volatile or unusual items.

A bank’s operating profit is not the same as a manufacturer’s operating profit

For entities that do not invest in assets or provide financing to customers as a specified main business activity, the investing category will generally include income and expenses from investments that generate returns individually and largely independently of the entity’s other resources. Examples include interest and dividends from financial assets and returns on investment property.

The costs of obtaining financing will generally be classified in the financing category.

Financial institutions operate differently from manufacturing companies: providing financing to customers and investing in assets are not ancillary activities, but primary sources of financial performance.

IFRS 18 addresses this directly by introducing separate classification rules for entities whose specified main business activity is providing financing to customers or investing in assets. The assessment of whether such an activity exists must be based on the facts and circumstances of the individual entity rather than simply on the name of its industry, and it requires documented judgement.

Under a typical business model, a bank, lending company or leasing company will classify interest income from financing provided to customers and the expenses associated with funding that activity in the operating category.

An insurer will present in the operating category the result from investments made as part of its main business activity, alongside the insurance service result presented in accordance with IFRS 17.

A distinction must be made between investment funds and fund management companies. An investment fund for which investing in assets constitutes a specified main business activity will generally classify the related income and expenses in the operating category. However, the result from investments accounted for using the equity method will remain in the investing category.

A fund management company represents a different case. Its operating income is derived primarily from management fees, while returns on the company’s own investments do not automatically become operating results and require a separate assessment.

In mixed groups combining, for example, manufacturing activities with a bank or leasing company, the assessment of specified main business activities raises additional questions at the consolidated level.

Disclosures begin in the 2026 financial statements

This is the source of the practical urgency surrounding IFRS 18.

Under IAS 8, an entity discloses the fact that it has not yet applied a new standard that has been issued, together with known or reasonably estimable information relevant to assessing the possible impact of applying the standard for the first time. Where the impact is not known or cannot be reasonably estimated, the entity must also disclose that fact.

In its statement of 17 February 2026, ESMA clarified its expectations in relation to IFRS 18. Information should be provided in interim and annual financial statements for periods before 1 January 2027 and should become increasingly specific as the implementation project progresses.

Where an issuer completes its impact assessment during the first half of 2026, relevant information should therefore already be included in its half-year financial report.

Depending on the stage of implementation, disclosures may include:

• a description of planned changes to the structure of the statement of profit or loss;
• the outcome of the assessment of whether the entity conducts specified main business activities;
• significant judgements and accounting policy choices;
• measures likely to meet the definition of management-defined performance measures;
• ultimately, an estimate of the impact on operating profit for 2026.

The conclusions of the implementation project will therefore be needed earlier than the mandatory application date alone might suggest.

Management measures will enter the financial statements and become subject to audit

Another change with significant practical implications concerns management-defined performance measures, or MPMs.

MPMs are subtotals of income and expenses that an entity uses in public communications outside the financial statements, such as investor presentations or current reports, to communicate management’s view of the entity’s financial performance.

Typical examples include adjusted profit, normalised profit or profit excluding one-off events.

Subtotals required or expressly specified by IFRS Accounting Standards, as well as subtotals similar to gross profit, are excluded from the definition of an MPM.

For financial institutions, this means in particular that the following are not MPMs:

• net interest income;
• net fee and commission income;
• insurance service result;

even where an entity uses these measures in public communications. Net rental income, for example, is treated in the same way.

Not every alternative performance measure is an MPM. Indicators such as return on equity, cost-to-income ratio, net interest margin, capital ratios, free cash flow or the number of customers are not themselves MPMs because they are not subtotals of income and expenses.

However, where the numerator or denominator of such an indicator is a subtotal of income and expenses, that subtotal may qualify for disclosure as an MPM. The inventory of published measures must therefore examine how they are constructed, rather than merely listing their names.

IFRS 18 requires all MPMs to be disclosed in a single note to the financial statements, together with:

• a reconciliation to the most directly comparable subtotal defined by IFRS Accounting Standards;
• the effects of income tax;
• the effects on non-controlling interests;
• an explanation of any changes in the method used to calculate the measure.

In practice, measures that previously appeared only in investor presentation slides will become part of the audited financial statements.

Identifying everything that an entity publishes will therefore no longer be a task solely for the financial reporting department. The involvement of investor relations teams and the management board will also be necessary.

Less room for “other” line items

The standard also introduces principles governing the aggregation and disaggregation of information.

Items should be aggregated on the basis of shared characteristics, while labels should provide meaningful information about their content.

A collective “other” category may be used only where a more precise description cannot be identified, and the entity must be prepared to provide additional explanations.

Entities presenting operating expenses by function will also be required to disclose selected expenses by nature in the notes.

Amendments to other standards

IFRS 18 also results in consequential amendments to other standards.

Under IAS 7, operating profit will become the starting point for preparing the statement of cash flows using the indirect method. The existing classification options for interest and dividends have also been restricted, with separate solutions applying to entities with specified main business activities.

IAS 34 has also been amended in relation to interim financial reporting.

Another change is frequently overlooked: IAS 8 will be renamed Basis of Preparation of Financial Statements.

This is not merely an editorial amendment. Requirements previously included in IAS 1 have been transferred to IAS 8, including requirements concerning:

• fair presentation and compliance with IFRS Accounting Standards;
• going concern;
• the accrual basis of accounting;
• the selection and application of accounting policies.

References to IAS 1 and IAS 8 in accounting policies, internal instructions and financial statement templates should therefore be inventoried and updated, particularly where they refer to specific paragraphs.

Work plan for 2026

The scope of work will depend on the size and profile of the entity, but the minimum programme for the coming months will be similar for most financial institutions:

1. Analyse the impact on the statement of profit or loss, including assessing and documenting which areas constitute the entity’s specified main business activities.
2. Make the accounting policy decisions required by IFRS 18, including those concerning the classification of financing expenses and cash and cash equivalents.
3. Review the chart of accounts and system mappings used in accounting and management reporting in light of the five categories and the new mandatory subtotals.
4. Inventory measures published outside the financial statements and assess which of them meet the definition of an MPM, together with a decision on whether all such measures should continue to be used.
5. Prepare restated comparative information for 2026, reconciliations between the existing and new presentation formats, and disclosures concerning the expected impact of the standard in interim and annual reports for 2026.
6. For issuers, update ESEF tagging on the basis of the amended taxonomy and treat this as part of the implementation project rather than as a separate exercise.
7. Communicate with the audit committee, supervisory board and statutory auditor, and provide training to financial reporting, controlling and investor relations teams.

For financial institutions, IFRS 18 has two principal practical consequences: a new definition of operating profit tailored to the specific nature of financing and investing activities, and the inclusion in the financial statements of measures that previously appeared only in market communications.

PKF’s Financial Institutions Department supports banks, insurers, lending companies, investment funds and fund management companies in conducting IFRS 18 gap analyses, mapping the statement of profit or loss, identifying MPMs, performing trial restatements of 2026 data and assessing the impact on ESEF reporting.

We invite you to contact us.