IFRS 18 will not become effective until 2027, but many organisations should not wait to begin their preparations. ESMA’s expectations indicate that the new requirements extend far beyond the presentation of financial statements and may require changes to processes, systems and reporting practices.

IFRS 18 is not merely a new format for the statement of profit or loss. It is a change that may require the redesign of IT systems, management reporting, accounting policies and market communications. Why is it worth starting preparations now?

IFRS 18, Presentation and Disclosure in Financial Statements, will apply to annual reporting periods beginning on or after 1 January 2027. Although the effective date may appear distant, many organisations should begin their preparations in 2026. The standard will be applied retrospectively, which means that comparative information will need to be restated and that data, systems and reporting processes must be prepared sufficiently early.

The new standard will replace IAS 1 and will represent one of the most significant changes to the presentation of financial performance in recent years. Its objective is to improve the transparency, consistency and usefulness of financial information so that users of financial statements can better assess an entity’s performance, its prospects for generating future cash flows and how management uses the entity’s resources.

IFRS 18 is not merely a change to the format of the statement of profit or loss

The implementation of IFRS 18 will not be limited to a technical redesign of the financial statements. The new requirements may affect the chart of accounts, financial and accounting systems, controlling tools, management reporting, investor presentations, interim and annual reports, market communications and ESEF reporting. ESMA has explicitly stated that the new requirements may necessitate changes to IT systems, management reports, communication strategies and accounting policies. Issuers should therefore begin their preparations sufficiently early.

In practice, IFRS 18 implementation will be an interdisciplinary project. In addition to finance and accounting teams, it may require the involvement of controlling, investor relations, IT, tax, stock exchange reporting personnel and audit committees. Ensuring consistency between the financial statements, management reporting and external communications will be particularly important.

Key areas of change

The most significant changes introduced by IFRS 18 relate to three areas:

• the new structure of the statement of profit or loss;
• the disclosure of management-defined performance measures, or MPMs;
• new requirements governing the aggregation and disaggregation of information.

New structure of the statement of profit or loss

One of the most significant changes is the introduction of a mandatory classification of all income and expenses recognised in the statement of profit or loss into specified categories. IFRS 18 provides for five categories: operating, investing, financing, income taxes and discontinued operations.

The standard also introduces mandatory subtotals, in particular:

• operating profit or loss;
• profit or loss before financing and income taxes;
• profit or loss.

For many companies, this will require a reassessment of the classification of individual items of financial performance. Certain items previously presented as part of operating profit may need to be reclassified to the investing or financing category. This may apply, among other things, to interest income on deposits, interest on loans granted to related parties, returns from assets that generate returns independently of the entity’s other resources, foreign exchange differences and financing costs.

Entities with a specified main business activity, including entities that invest in assets or provide financing to customers, will require particularly detailed analysis. For such entities, the classification of certain items of income and expense may differ from the classification applied by non-financial entities. The assessment of whether investing in assets or providing financing to customers constitutes an entity’s main business activity should be based on facts and evidence, rather than solely on management’s assertion.

Management-defined performance measures — MPMs

IFRS 18 introduces new requirements concerning management-defined performance measures, or MPMs. These are subtotals of income and expenses that an entity uses in public communications outside the financial statements to communicate management’s view of an aspect of the entity’s financial performance as a whole.

In practice, MPMs may include adjusted operating profit, adjusted profit, adjusted profit from continuing operations or other measures used in management reports, investor presentations or stock exchange announcements. However, not every measure used by a company will qualify as an MPM. Cash flow measures, ratios such as ROE or ROA, non-financial information and measures relating solely to assets or liabilities do not meet the definition of an MPM under IFRS 18.

Companies will need to review which performance measures they currently communicate to the market and determine whether they meet the definition of an MPM. All MPMs will have to be disclosed in a single note to the financial statements or clearly identified if presented as part of other disclosures. For each measure, the entity will need to provide a description, explain how it is calculated and reconcile it to the most directly comparable subtotal or total specified by IFRS Accounting Standards, including the effects of income tax and non-controlling interests.

It is also important to distinguish MPMs from alternative performance measures, or APMs, which are governed by ESMA guidelines. The scope of these concepts may partially overlap, but they are not identical. ESMA has published separate materials on the interaction between IFRS 18 and its APM Guidelines, highlighting the need for consistency and the avoidance of duplicated disclosures.

Aggregation and disaggregation of information

Another significant area of change concerns the principles of aggregation and disaggregation. IFRS 18 places greater emphasis on presenting information in a transparent and useful manner without obscuring material information. An entity should aggregate items that share similar characteristics and disaggregate items whose characteristics differ in a way that is material to users of the financial statements.

This will require a review of existing line items, descriptions, notes and the level of detail provided in disclosures. Particular attention should be given to items described as “other” or “miscellaneous”. IFRS 18 requires line-item descriptions to faithfully represent the characteristics of the items concerned and prevents excessive aggregation that could result in the loss of material information.

From a practical perspective, companies should assess whether the current level of detail in their financial statements is sufficient, whether items of a different nature are being combined and whether information material to investors is being concealed within overly broad categories.

Impact on comparative information and interim reporting

IFRS 18 will be applied retrospectively in accordance with IAS 8. This means that comparative information will need to be restated. Entities will also be required to disclose a reconciliation for each line item in the statement of profit or loss between the amounts restated in accordance with IFRS 18 and the amounts previously presented in accordance with IAS 1.

Consequently, data for 2026 will be particularly important. Companies that begin preparations only at the end of 2026 or in 2027 may encounter difficulties in reconstructing data in the required format, particularly if their current systems do not allow income and expenses to be appropriately allocated to the new categories.

IFRS 18 will also affect interim reporting. In the first year of applying the standard, entities preparing condensed interim financial statements in accordance with IAS 34 will need to take account of specific transition requirements, including the presentation of the line items and subtotals they expect to use under IFRS 18.

Amendments to other standards

The implementation of IFRS 18 will also involve amendments to other standards. Amendments to IAS 7 will be particularly important because, when preparing the statement of cash flows using the indirect method, operating profit will become the starting point. For entities without a specified main business activity, the classification of certain cash flows will also change, including interest received, interest paid and dividends received.

The amendments will also affect IAS 8, whose title and scope will be modified, as well as IAS 33 regarding additional per-share amounts. Such amounts will be permitted to be presented only in the notes to the financial statements, provided that specified conditions are met.

ESMA’s expectations

For listed issuers, the implementation of IFRS 18 should also be considered in the context of ESMA’s expectations. In its public statement dated 17 February 2026, ESMA emphasised the need for high-quality, timely and transparent implementation of IFRS 18, including transparent communication of the standard’s expected impact before it becomes effective.

ESMA expects issuers to disclose information about material judgements, accounting policy choices, changes to the structure of the statement of profit or loss, assessments of their main business activities and planned MPMs as soon as that information becomes available. In practice, this may require appropriate disclosures to be included in reports for 2026 and, in some cases, in interim reports.

ESMA has also highlighted the impact of IFRS 18 on ESEF reporting. The new structure of the statement of profit or loss, the new subtotals and the disclosures concerning MPMs will need to be appropriately tagged in XBRL. Companies should therefore assess the impact of IFRS 18 on taxonomy mapping and the ESEF reporting process sufficiently early.

What should companies do now?

Preparations for IFRS 18 should begin with an assessment of the standard’s impact on financial reporting, systems and financial communications. In particular, companies should:

• analyse the current structure of their statement of profit or loss;
• allocate individual items of income and expense to the new categories;
• identify areas requiring professional judgement;
• assess whether the entity has a specified main business activity, such as investing in assets or providing financing to customers;
• review the performance measures currently used and determine which of them meet the definition of an MPM;
• prepare draft MPM disclosures and reconciliations;
• assess the impact of the changes on comparative information;
• verify the capabilities of financial, accounting and reporting systems;
• analyse the impact of IFRS 18 on ESEF reporting;
• prepare an implementation timetable and an investor communication plan.

IFRS 18 as a reporting project, not merely an accounting project

IFRS 18 will change how financial information is presented and disclosed, but its impact extends far beyond accounting alone. The new standard requires companies to organise the way in which they communicate financial performance, increases the importance of consistency between financial and management reporting, and introduces greater discipline in the use of performance measures.

The best-prepared organisations will be those that treat IFRS 18 implementation as a project encompassing data, processes, systems, accounting policies, disclosures and market communications. For listed companies, compliance with ESMA’s expectations, transparency of disclosures before the date of initial application and readiness to restate comparative information will also be particularly important.

In practice, 2026 should be a period of intensive preparation for issuers, ranging from gap mapping and trial restatement of data to the preparation of disclosures, updates to accounting policies and adjustments to investor communications. IFRS 18 does not change the measurement principles used to determine financial performance, but it significantly changes how that performance will be presented, explained and analysed by users of financial statements.