What is IFRS 18?


IFRS 18 "Presentation and disclosure in Financial Statements" is the new standard that will replace IAS 1 "Presentation of Financial Statements" (IAS 1), marking a major shift in how companies present their financial statements under IFRS Accounting Standards. Designed to improve the clarity and financial statement disclosure, IFRS 18 focuses particularly on income statement classification.

It introduces new requirements that enhance the IFRS 18 disclosure requirements and the structure and clarity of financial reports in accounting, especially the income statement. These changes will allow investors and other stakeholders to more easily analyze and compare accounting financial statements from different companies.

Although IFRS 18 introduces significant updates, many of the core elements of IAS 1 will remain. The new standard will either retain these elements with minor changes or integrate them into other IFRS.

IFRS 18 will become mandatory for annual reporting periods starting on or after 1 January 2027, although companies may opt to implement it earlier than that.

 

Why is IFRS 18 important for companies?


IFRS 18 affects companies in all industries that prepare their financial statements in accordance with IFRS. This includes listed companies, private enterprises and non-profit organizations.

While IFRS 18 does not change how companies recognize or measure assets and liabilities, it will greatly change how they present and disclose financial information. This includes adjustments to the structure of the income statement and cash flow statement, as well as the disclosures provided in the notes.

Martin Stevka

Partner, Head Accounting Advisory Services Corporates

KPMG Switzerland

Daniel Haas

Partner, Co-Head Accounting Advisory Services Corporates

KPMG Switzerland

Key changes: From IAS 1 to IFRS 18 – what’s new?

The new standard introduces the following major updates to the IFRS 18 reporting structure in the IFRS financial statements:

  • New income categories

    Income statement classification into three newly defined categories: operating, investing and financing.


  • Standardized profit subtotals

    Introduction of two new subtotals:

    1. Operating profit or loss

    2. Profit or loss before financing and income tax


  • Disclosure of MPMs

    New IFRS 18 disclosure requirements for management-defined performance measures (MPMs), which reflect management’s view of company performance.


  • Clearer expense breakdowns

    Enhanced guidance on aggregation and disaggregation, including mandatory breakdown of certain expenses in the notes when companies present operating expenses by function.

These updates change the reporting structure of the new standard and will likely impact both internal and external reportings under IFRS 18.

How IFRS 18 impacts companies

Strategic and operational implications:

  • System changes ahead

    IFRS 18 will require companies to significantly change how they present financial reporting and financial accounting data. It may affect how net income and expenses are presented in the income statement and require adjustments to the level and structure of disclosures in the notes. As a result, many organizations will need to update their financial reporting systems, processes and internal controls. Since current reporting practices and system maturity vary from company to company, the extent of the impact will differ as well.

  • Complex classifications

    Companies that already include an "Operating profit or loss" subtotal might need to adjust their calculations to meet the new standard. Classifying income and expenses into the new categories can be complex and time-consuming, especially for businesses with diverse operations that require careful judgment.

  • New performance metrics

    The introduction of new requirements for management-defined performance measures (MPMs) may also influence how companies communicate their financial performance to investors and stakeholders. Taking a proactive approach to planning and stakeholder communication will be essential to explaining the changes and maintain transparency.
     

Why is there a need for IFRS 18?

Key drivers for IFRS 18 implementation

Investors seek comparable income statements and clearly defined subtotals as well as more detailed information to better understand a company’s performance and to make comparisons between companies easier. While some companies currently report an “Operating profit or loss” subtotal, the way it’s calculated varies widely, making it difficult for investors to compare results across different businesses.

Moreover, many companies use non-GAAP measures (also known as alternative performance measures) to explain their financial performance, including metrics like gross profit. However, inconsistent or low-quality disclosures about these measures have raised concerns among investors.

IFRS 18 addresses these issues by helping companies communicate financial statement disclosures in a clearer and more consistent way.


illustrative income statement > Click on the image to enlarge it

How KPMG Switzerland can help – Your partner in IFRS financial accounting advisory

At KPMG, we understand the technical and industry-specific challenges involved in implementing IFRS 18. Our experts provide bespoke support to help companies align their accounting financial statements with the new IFRS requirements on presentation, classification and disclosure.

Our support for implementing IFRS 18 includes:

  • Help interpret the IFRS 18 classification, presentation and disclosure requirements.
  • Assist with updating the chart of accounts, internal systems and processes.
  • Assist in explaining changes in financial performance to stakeholders.
  • Providing tools and insights to improve IFRS 18 financial reporting and accounting practices under IFRS 18.

FAQs

IFRS 18 will replace IAS 1, introducing updated requirements to improve the presentation and disclosure of financial information in IFRS financial statements.

The four key changes of IFRS 18 focus on improving financial reporting by:

  1. Classifying income and expenses into operating, investing, and financing categories.

  2. Introducing new subtotals such as “Operating profit or loss” and “Profit or loss before financing and income tax”.

  3. Requiring disclosure of management-defined performance measures (MPMs).

  4. Improving the aggregation and disaggregation of financial information, including detailed expense disclosures in the notes.

Although IFRS 18 improves the presentation and disclosure of financial information, there are some challenges:

  • Implementing the new classification and disclosure requirements can be complex and time-consuming, especially for companies with diverse operations.
  • The need for significant judgment in classifying income and expenses may lead to inconsistencies between companies.
  • Smaller entities may also struggle to update their reporting systems and processes to comply with the new standard.

Companies should focus on these next steps:

  • Assess the impact of IFRS 18 on their current reporting.
  • Begin planning for necessary system and process changes.
  • Review existing performance measures and disclosures.
  • Engage with stakeholders early to ensure clear communication of upcoming changes.

IFRS 18 aims to enhance comparability by standardizing the classification and presentation of income and expenses. However, the increased use of management-defined performance measures (MPMs) introduces some subjectivity, which could reduce comparability if companies apply different definitions. Therefore, clear disclosures are crucial for users to understand and compare financial information effectively.


Find out more about IFRS 18 Accounting Standards

Download our guide

IFRS 18 – First Impressions on Presentation and Disclosure

This publication provides a concise overview of the key changes introduced by IFRS 18, including the restructured income statement, inclusion of management performance measures in the financial statements, and enhanced disclosure requirements. A must-read for professionals preparing for implementation.


Meet our experts

Martin Stevka

Partner, Head Accounting Advisory Services Corporates

KPMG Switzerland

Daniel Haas

Partner, Co-Head Accounting Advisory Services Corporates

KPMG Switzerland


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