IFRS 18 is not an accounting project – it is a reporting project.

With IFRS 18 ‘Presentation and Disclosure in Financial Statements,’ the IASB replaces IAS 1 in response to a long-standing concern of investors and analysts: the presentation of financial performance, particularly operating results, has lacked comparability across companies. IFRS 18 introduces a more standardised income statement structure and increases the transparency of entity-specific performance metrics. The standard is mandatory for fiscal years beginning on or after 1 January 2027, with retrospective application to the comparative period. For companies with a calendar fiscal year, this means 2026 is already in scope. 

Companies should therefore view IFRS 18 not primarily as a new accounting standard, but as a project to reshape their financial reporting. 

The standard changes neither assets nor liabilities, nor net income. Yet companies must restructure their income statement, make management performance measures more transparent, prepare additional reconciliations and, in some cases, adapt systems and data models. 

That also presents an opportunity. IFRS 18 can serve as a catalyst to review legacy reporting structures and KPI frameworks, to better align internal and external reporting and to strengthen the overall quality of financial communication. 

What does IFRS 18 change for financial institutions? 

1. IFRS 18 changes the presentation of company performance 

The most visible change concerns the income statement. 

Going forward, preparers applying IFRS 18 must classify income and expenses into five categories: operating, investing, financing, income taxes and discontinued operations. The standard also introduces mandatory subtotals, notably operating profit or loss and profit or loss before financing and income taxes. 

The aim is greater comparability. Under IAS 1, entities had significant discretion in presenting operating results. IFRS 18 now establishes more uniform reference points for assessing company performance. 

This can materially alter established performance metrics. For example, entities will generally classify the share of profit from equity-accounted investments in the investing category, placing it below operating profit. Conversely, non-recurring or unusual expenses such as certain restructuring costs may form part of the operating category. Under IFRS 18, ‘operating’ does not equate to ‘recurring.’ 

Net income remains unchanged. However, its composition, and therefore key management metrics, may shift. Companies should assess early on what impact these changes have beyond pure accounting adjustments on internal KPIs, covenants, compensation models and external communications. 

Special considerations for banks and financial institutions 

The business-model approach of IFRS 18 is particularly evident for banks, leasing companies and other financial services providers. 

While financing activities typically fall outside operating profit for industrial companies, lending and refinancing are core business for banks. IFRS 18 addresses this through specific provisions for entities with particular main business activities. Income and expenses that an industrial company would classify as investing or financing may be reported as part of operating profit by a financial institution. 

The new structure is therefore designed not merely to impose uniformity, but to present an entity’s operating performance more faithfully in the context of its business model. 

2. IFRS 18 brings transparency to entity-specific management metrics 

A second key area is management-defined performance measures (MPMs). 

MPMs are, broadly, publicly communicated entity-specific profit or loss measures through which management conveys an aspect of the overall financial performance. Common examples include Adjusted EBIT, Adjusted EBITDA and other adjusted earnings figures. 

These metrics have played a major role in corporate management and external communication for years. Yet for users of financial statements, their derivation has not always been fully transparent. 

IFRS 18 therefore requires additional note disclosures. In particular, companies must explain why an MPM is used, how it is calculated and how it relates to a comparable IFRS measure. Entity-specific adjustments remain permissible, but become more transparent and are more tightly integrated into the regular financial reporting process. 

This goes beyond a mere disclosure obligation. It gives companies a reason to reassess their existing KPI landscape. Which metrics are genuinely needed for management purposes? Are internal and external metrics consistently defined? Can reporting and corporate communications be more closely aligned? 

IFRS 18 can thus foster closer integration of accounting, controlling and corporate communications. 

3. IFRS 18 imposes new requirements on data and processes 

One of the greatest practical challenges lies in data availability. 

This is illustrated by foreign exchange differences. Under IFRS 18, entities must generally classify currency effects in the same income statement category as the underlying item. Companies must therefore be able to trace whether a currency effect arises, for example, from a trade receivable, a financial asset or a financing liability. Legacy chart-of-accounts structures do not always provide this information at the required level of granularity. 

The challenge is even more pronounced for the new expense-by-nature disclosures. Entities that present operating expenses wholly or partly by function must provide additional information for selected expense types, including in particular employee benefits, depreciation and amortisation, and certain impairment losses. 

Internal cost allocations can pose a particular problem. Expenses are initially recorded by nature and then reallocated through cost centres, overhead charges or shared-service structures. In this process, the original expense-by-nature information can be lost. The receiving function may only see an allocated total. 

IFRS 18 demands precisely this additional transparency. 

Implementation is therefore not solely an accounting task. Controlling, consolidation, IT and data management must all be involved at an early stage. At the same time, the transition offers an opportunity to simplify reporting processes, harmonise data structures and move from manual to automated close processes. 

4. IFRS 18 requires additional reconciliations and disclosures 

IFRS 18 also sets out two key reconciliation requirements. 

Reconciliation from IAS 1 to IFRS 18 on initial application 

IFRS 18 must generally be applied retrospectively. On initial application for a calendar fiscal year 2027, entities must also present the 2026 comparative period under IFRS 18. 

In addition, entities must provide a quantitative reconciliation showing how the income statement line items previously reported under IAS 1 map to the IFRS 18 presentation. This makes transparent the effects of, for example, new categories, revised subtotals or changes in line-item classification. 

The practical consequence is significant: the relevant data for 2026 must either already be captured under the new logic or be capable of reliable reconstruction after the fact. Companies should not wait until the year of initial application to build the necessary data foundation. 

Reconciliation of an MPM to an IFRS subtotal 

The MPM reconciliation serves a different purpose. It makes visible how a management-communicated earnings measure is derived from a comparable IFRS figure. 

For an Adjusted Operating Profit, this could mean starting from the IFRS operating profit and then transparently presenting each adjustment made by management. For this reconciliation, entities must also disclose the income tax effects and non-controlling interest impacts of each adjustment item. 

This enables the reader to see exactly which adjustments stand between the IFRS-reported result and management’s view of performance. That is the core of the new transparency requirement. 

Conclusion: from standard to implementation 

IFRS 18 goes well beyond a new income statement format. The standard more tightly connects external financial reporting, internal management and data governance. 

Companies should use the remaining time before initial application to focus on three priorities. 

• First: determine the impact on income statement structure, KPIs and MPMs. 
• Second: assess whether the data required for new note disclosures and reconciliations is available. 
• Third: implement necessary changes to processes, systems and controls in a timely manner. 

Companies should not treat IFRS 18 purely as a compliance exercise. Used well, the transition offers a chance to critically review legacy metrics, reporting processes and data structures, and to put both internal and external reporting on a more consistent and automated footing. 

The question is no longer whether IFRS 18 affects reporting. The question is whether processes and data are ready in time.