IFRS 18 Presentation and Disclosure in Financial Statements is the biggest change to the shape of the income statement in two decades. Issued by the IASB in April 2024, it replaces IAS 1 and applies to annual reporting periods beginning on or after 1 January 2027, including interim financial statements in that year.
Because the standard applies retrospectively, comparative figures must be re-presented. For an entity with a December year end, that means the 2026 financial statements you are closing now will need to be restated in the IFRS 18 format when you publish your 2027 accounts. The time to prepare is this year.
What changes
1. New categories in the statement of profit or loss
Income and expenses must be classified into categories, mainly operating, investing and financing, together with income taxes and discontinued operations. Two new defined subtotals are required: operating profit and profit before financing and income taxes.
2. Management-defined performance measures
Many companies report their own measures, such as adjusted EBITDA, in investor presentations and annual reports. Where these meet the definition of management-defined performance measures, IFRS 18 requires them to be disclosed in a single note in the financial statements, with a reconciliation to the closest IFRS subtotal and an explanation of why the measure is useful.
3. Better grouping of information
The standard sets out clearer principles for aggregating and disaggregating information, so that material items are not hidden inside large totals labelled “other”.
4. Related changes to the cash flow statement
Consequential amendments to IAS 7 use operating profit as the starting point for the indirect method and remove some of the choices in how interest and dividends are classified.
Who is affected
IFRS 18 applies to entities that report under full IFRS. It does not change IPSAS, which most public sector entities in Kenya use, or the IFRS for SMEs Standard. Group subsidiaries that report into an IFRS parent should expect requests for information in the new format.
How to prepare
- Map your current income statement lines to the new categories and identify judgement areas.
- Review the measures you use outside the financial statements and decide which are management-defined performance measures.
- Check whether your chart of accounts and reporting system can capture the new categories, so that 2026 comparatives can be produced without manual workarounds.
- Brief your board and audit committee, because headline numbers such as operating profit may change.
We help finance teams assess the impact of new standards and adapt their reporting systems. See our financial management advisory services or contact us.