What are the key changes under IFRS 18 for financial statement presentation?

IFRS 18 Presentation and Disclosure in Financial Statements (effective 1 January 2027, replacing IAS 1) restructures the statement of profit or loss by mandating three income and expense categories — operating, investing, and financing — with three prescribed mandatory subtotals, and introduces binding disclosure requirements for management performance measures (MPMs). It also strengthens requirements for disclosure of material accounting policies and significant judgements. ![IFRS 18 statement of profit or loss — three categories and mandatory subtotals](/images/ifrs-18-table.gif) - Three mandatory categories (IFRS 18.39). All income and expenses in the statement of profit or loss must be classified into three categories: operating (the residual — all items not qualifying as investing or financing), investing (returns from assets that generate income independently of the entity's main business activities), and financing (income and expenses from liabilities that represent a source of finance). This replaces the prior flexibility of IAS 1, which allowed diverse approaches to "operating" presentation. - Three mandatory subtotals (IFRS 18.82). Three subtotals are required on the face of the statement and cannot be relabelled or omitted: 1. Operating profit or loss — total of the operating category. 2. Profit or loss before financing and income tax — operating profit plus the investing category total. 3. Profit or loss before income tax — the sum of all three categories (operating + investing + financing). - Management performance measures — MPMs (IFRS 18.106–115). An MPM is any profit subtotal that management communicates publicly and that is derived from an IFRS total or subtotal in the statement of profit or loss. Operating profit is a required IFRS subtotal — it is not an MPM. Examples of MPMs include "adjusted EBITDA", "underlying profit", "adjusted operating profit". For each MPM, entities must disclose: (a) a reconciliation to the nearest IFRS subtotal; (b) the tax effect; (c) the non-controlling interests effect; and (d) an explanation of why the measure is useful to users.

What is the required format and level of detail for the management performance measure reconciliation under IFRS 18.89–90?

| MPM reconciliation | Amount (€m) | |---|---| | Operating profit (nearest IFRS subtotal) | 110 | | Add: Depreciation and amortisation | 35 | | Add: Share-based payments | 3 | | Adjusted EBITDA (MPM) | 148 | Tax effect of adjustments: €9.5m. NCI effect: nil. XYZ discloses that this measure reflects operating efficiency before non-cash charges. - Confusing operating profit with an MPM. Operating profit is a mandatory IFRS subtotal — it is defined and required by IFRS 18. It is not a management performance measure. MPMs are voluntary measures management communicates beyond the required subtotals (e.g., "adjusted EBITDA", "underlying operating profit"). Mislabelling IFRS 18's required subtotals as MPMs misrepresents the standard. - Assuming IFRS 18 aligns the cash flow statement with income statement categories. IAS 7 is unchanged. The three-category structure applies only to the statement of profit or loss. Operating cash flows in the cash flow statement continue to follow IAS 7 definitions, which differ from the IFRS 18 operating category. - Over-attributing OCI changes to IFRS 18. The reclassifiable/non-reclassifiable OCI split was already required by IAS 1. IFRS 18 does not introduce new OCI rules. Citing IFRS 18 as the source of OCI requirements is technically incorrect.

Does IFRS 18 permit presentation of 'EBITDA' or similar metrics on the face of the statement of comprehensive income, or only in notes?

- Publishing MPMs without the full reconciliation. Entities that disclose "adjusted EBITDA" or similar measures in earnings releases, investor presentations, or annual reports without a reconciliation (including tax effect and NCI effect) to the nearest IFRS subtotal breach IFRS 18.106–115. - IFRS 18.39 — the three mandatory income and expense categories. - IFRS 18.53 — operating as the residual category. - IFRS 18.82 — mandatory subtotals: operating profit, profit before financing and income tax, profit before income tax. - IFRS 18.106–115 — management performance measures (MPMs): definition, scope, and required disclosures.

IFRS 18 Presentation & Disclosures

IFRS 18 Presentation and Disclosures — Core Rule

IFRS 18 Presentation and Disclosure in Financial Statements (effective 1 January 2027, replacing IAS 1) restructures the statement of profit or loss by mandating three income and expense categories — operating, investing, and financing — with three prescribed mandatory subtotals, and introduces binding disclosure requirements for management performance measures (MPMs). It also strengthens requirements for disclosure of material accounting policies and significant judgements.

IFRS 18 statement of profit or loss — three categories and mandatory subtotals — Click to enlarge

How IFRS 18 Presentation and Disclosures Works

Three mandatory categories (IFRS 18.39). All income and expenses in the statement of profit or loss must be classified into three categories: operating (the residual — all items not qualifying as investing or financing), investing (returns from assets that generate income independently of the entity's main business activities), and financing (income and expenses from liabilities that represent a source of finance). This replaces the prior flexibility of IAS 1, which allowed diverse approaches to "operating" presentation.

Three mandatory subtotals (IFRS 18.82). Three subtotals are required on the face of the statement and cannot be relabelled or omitted:

1. Operating profit or loss — total of the operating category.

2. Profit or loss before financing and income tax — operating profit plus the investing category total.

3. Profit or loss before income tax — the sum of all three categories (operating + investing + financing).

Management performance measures — MPMs (IFRS 18.106–115). An MPM is any profit subtotal that management communicates publicly and that is derived from an IFRS total or subtotal in the statement of profit or loss. Operating profit is a required IFRS subtotal — it is not an MPM. Examples of MPMs include "adjusted EBITDA", "underlying profit", "adjusted operating profit". For each MPM, entities must disclose: (a) a reconciliation to the nearest IFRS subtotal; (b) the tax effect; (c) the non-controlling interests effect; and (d) an explanation of why the measure is useful to users.

Material accounting policies and significant judgements (IFRS 18 — disclosure). IFRS 18 requires disclosure of material accounting policies (not all policies) and significant judgements separately from each other. Disclosures must be entity-specific and informative, not boilerplate reproductions of the standard.

What IFRS 18 does not change. Several areas that might be expected to change are in fact unaffected:

- Statement of cash flows: IAS 7 remains unchanged. There is no automatic alignment between operating cash flows and the operating category of the income statement.

- OCI: The reclassifiable/non-reclassifiable OCI distinction already existed in IAS 1 and is carried forward unchanged.

- Statement of financial position: Current/non-current classification continues per IAS 1 principles.

- Discontinued operations: IFRS 5 is unchanged. IFRS 18 introduces no new rules for discontinued operations.

IFRS 18 Presentation and Disclosures — Practical Example

XYZ Manufacturing Ltd. — Statement of profit or loss, year ended 31 December 2027

Line item	Category	Amount (€m)
Revenue	Operating	500
Cost of sales	Operating	(280)
Distribution & admin expenses	Operating	(110)
Operating profit (mandatory subtotal)		110
Dividend income from equity investments	Investing	8
FV gain on equity instruments at FVTPL	Investing	4
Profit before financing and income tax (mandatory subtotal)		122
Interest expense on bonds	Financing	(12)
Profit before income tax (mandatory subtotal)		110
Income tax expense		(22)
Profit for the year		88

XYZ also publicly reports adjusted EBITDA of €148m. This is an MPM requiring full disclosure under IFRS 18.106–115:

MPM reconciliation	Amount (€m)
Operating profit (nearest IFRS subtotal)	110
Add: Depreciation and amortisation	35
Add: Share-based payments	3
Adjusted EBITDA (MPM)	148

Tax effect of adjustments: €9.5m. NCI effect: nil. XYZ discloses that this measure reflects operating efficiency before non-cash charges.

IFRS 18 Presentation and Disclosures — Common Pitfalls

Confusing operating profit with an MPM. Operating profit is a mandatory IFRS subtotal — it is defined and required by IFRS 18. It is not a management performance measure. MPMs are voluntary measures management communicates beyond the required subtotals (e.g., "adjusted EBITDA", "underlying operating profit"). Mislabelling IFRS 18's required subtotals as MPMs misrepresents the standard.

Assuming IFRS 18 aligns the cash flow statement with income statement categories. IAS 7 is unchanged. The three-category structure applies only to the statement of profit or loss. Operating cash flows in the cash flow statement continue to follow IAS 7 definitions, which differ from the IFRS 18 operating category.

Over-attributing OCI changes to IFRS 18. The reclassifiable/non-reclassifiable OCI split was already required by IAS 1. IFRS 18 does not introduce new OCI rules. Citing IFRS 18 as the source of OCI requirements is technically incorrect.

Publishing MPMs without the full reconciliation. Entities that disclose "adjusted EBITDA" or similar measures in earnings releases, investor presentations, or annual reports without a reconciliation (including tax effect and NCI effect) to the nearest IFRS subtotal breach IFRS 18.106–115.

IFRS 18 Presentation and Disclosures — Key Paragraphs

IFRS 18.39 — the three mandatory income and expense categories.
IFRS 18.53 — operating as the residual category.
IFRS 18.82 — mandatory subtotals: operating profit, profit before financing and income tax, profit before income tax.
IFRS 18.106–115 — management performance measures (MPMs): definition, scope, and required disclosures.