Changes Introduced by IFRS 18 to IAS 1: A Complete Guide to the New Financial Reporting Standard

The International Accounting Standards Board (IASB) issued IFRS 18 “Presentation and Disclosure in Financial Statements” on 9 April 2024, marking the most significant change to financial reporting in over 20 years. This new standard replaces IAS 1 “Presentation of Financial Statements” and represents a fundamental overhaul of how companies present and disclose financial information.

IFRS 18 introduces substantial changes to the structure of the statement of profit or loss, new defined subtotals, requirements for management-defined performance measures, and enhanced guidance on aggregation and disaggregation. These changes aim to improve comparability, transparency, and decision-usefulness of financial statements for investors and other stakeholders.

This guide provides a comprehensive examination of the changes introduced by IFRS 18 to IAS 1, covering the rationale for the new standard, the key changes, practical implications for businesses, and implementation guidance.

The Pain Points: What Finance Professionals Are Facing

Let’s be honest. If you’re a finance professional, accountant, or financial controller, IFRS 18 is probably keeping you up at night. Here are the specific frustrations many professionals are experiencing as they prepare for this major change.

“I Don’t Even Know Where to Start”

IFRS 18 is not a minor update. It’s a fundamental overhaul of how financial statements are presented. The statement of profit or loss is being completely restructured. New subtotals are being introduced. Management-defined performance measures are now subject to audit. The aggregation and disaggregation rules are changing.

For many finance teams, this feels overwhelming. You don’t know where to start. You don’t know what systems need to change. You don’t know what the impact on your financial statements will be.

“Our Systems Can’t Handle the New Requirements”

The five mandatory categories in the statement of profit or loss require a complete reclassification of income and expenses. Your chart of accounts may need to be redesigned. Your financial reporting systems may need to be upgraded. Your data capture processes may need to be overhauled.

Many finance teams are discovering that their current systems cannot handle the new requirements. The cost and complexity of system changes are a major source of anxiety.

“Management Uses Performance Measures We Don’t Fully Understand”

Management-defined performance measures (MPMs) are now subject to audit scrutiny. Under IFRS 18, you must disclose all MPMs in a single note and provide reconciliation to IFRS subtotals.

For many companies, this is a major challenge. Management may have been using MPMs that are not clearly defined or consistently calculated. Some MPMs may not be easily reconciled to IFRS measures. Others may be used in external communications but are not properly documented.

The finance team is now responsible for bringing these measures into the audited financial statements. This creates tension between management’s desire for flexibility and the finance team’s need for precision.

“We Have Multiple Operating Segments with Different Financial Reporting Practices”

IFRS 18 requires that items with different characteristics must be disaggregated. For companies with diverse operating segments, this creates significant challenges. Different business units may have different accounting policies and reporting practices. Harmonising these across the group is a major undertaking.

“Stakeholders Don’t Understand the Changes”

Investors, analysts, and other stakeholders have become accustomed to the current presentation format. They understand how to read and interpret your financial statements. Now everything is changing.

The new format will require explanation. Stakeholders will need to be educated on the new structure, the new subtotals, and the meaning of MPMs. This is a significant communication challenge.

“We Don’t Have the Time or Resources to Prepare”

The effective date is 1 January 2027. That may seem far away, but the implementation effort is substantial. Finance teams are already stretched thin with regular reporting, audit, and compliance obligations. Finding the time and resources to prepare for IFRS 18 is a significant challenge.

“The Guidance Is Still Evolving”

While IFRS 18 has been issued, the IASB continues to develop supporting materials and educational resources. Some interpretations are still evolving. This creates uncertainty for finance teams trying to prepare.

Background: Why Was IFRS 18 Developed?

Before IFRS 18, IAS 1 had been in place for over two decades. While it provided an overall framework for financial statement presentation, it gave companies significant flexibility in how they structured their statements of profit or loss and disclosed information.

Investors and analysts had long called for improvements in financial reporting comparability. The key concerns included:

1. Limited Comparability
Companies in the same industry often presented their statements of profit or loss in very different ways. Some used a function of expense method; others used a nature of expense method. Some presented operating profit; others did not. This made it difficult for investors to compare performance across companies.

2. Inconsistent Structure and Custom Subtotals
IAS 1 never defined “operating profit”. Companies could choose whether to present it and how to define it. This led to inconsistencies and confusion, as different companies used different definitions for the same label.

3. Poor Aggregation and Disaggregation
Information was either overly aggregated (hiding key details) or overly disaggregated (creating information overload). IAS 1 provided limited guidance on how to determine the appropriate level of detail.

4. Lack of Transparency for Management-Defined Performance Measures
Companies widely used non-IFRS measures such as EBITDA, adjusted profit, and underlying profit. However, IAS 1 had no specific requirements for these externally communicated performance measures. This lack of regulation created opportunities for inconsistency and potential manipulation.

The IASB concluded that a new standard was needed to address these concerns. IFRS 18 was developed to improve comparability, transparency, and decision-usefulness of financial statements.

Overview of Key Changes: IFRS 18 vs. IAS 1

The Three Core Changes in Detail

1. Fundamental Restructuring of the Statement of Profit or Loss

The most significant change in IFRS 18 is the restructuring of the statement of profit or loss. All income and expenses must now be classified into five mandatory categories:

Category 1: Operating
This is the default category that captures income and expenses arising from an entity’s principal business activities. It includes:

Revenue from contracts with customers (IFRS 15)

Cost of sales

Selling, general, and administrative expenses

Depreciation and amortisation of operating assets

Impairment losses on operating assets

Category 2: Investing
This category captures income and expenses arising from assets that generate returns independently. Examples include:

Dividend income

Interest income

Gains or losses on disposal of investments

Impairment losses on investment assets

Category 3: Financing
This category captures income and expenses related to financing activities. Key items include:

Interest expense on borrowings

Interest expense on lease liabilities (except for certain exceptions)

Category 4: Income Taxes
Income tax expense or income, as determined under IAS 12, remains separate.

Category 5: Discontinued Operations
Results from discontinued operations, as defined under IFRS 5, remain separately presented.

Mandatory Subtotals

Building on these categories, IFRS 18 introduces two new mandatory subtotals that all entities must present:

1. Operating Profit or Loss
This is the result of the operating category. While companies previously could choose whether to present operating profit, IFRS 18 now makes it mandatory.

2. Profit or Loss Before Financing and Income Taxes
This subtotal equals operating profit plus investing income and expenses. It effectively represents an IFRS-defined version of EBIT (Earnings Before Interest and Taxes). This is particularly useful for investors because it removes the effects of capital structure and tax rates, allowing for better comparison across companies.

3. Total Profit or Loss
This remains the final line item, as under IAS 1.

Entities may also present optional subtotals if they provide useful information. For example, an entity may present EBITDA (earnings before interest, taxes, depreciation, and amortisation) as an optional subtotal.

2. Management-Defined Performance Measures (MPMs) — A Major Transparency Enhancement

One of the most significant changes introduced by IFRS 18 concerns Management-Defined Performance Measures (MPMs).

What Are MPMs?

MPMs are subtotals of income and expenses that:

Are not specified in IFRS

Are used by management in public communications (such as earnings calls, press releases, investor presentations)

Communicate management’s view of an aspect of the entity’s financial performance

Examples of MPMs include:

Adjusted EBITDA

Underlying profit

Adjusted operating profit

Core earnings

Normalised earnings

Why Did IASB Introduce This Requirement?

Prior to IFRS 18, companies frequently used MPMs in their external communications, but there were no IFRS requirements governing these measures. This created:

Inconsistency – Different companies used different definitions for similar measures

Lack of transparency – Companies often disclosed MPMs without reconciliation to IFRS measures

Potential for manipulation – Companies could present overly favourable measures without proper explanation

The New Requirements Under IFRS 18

IFRS 18 requires entities to:

1. Disclose All MPMs in a Single Note
All MPMs must be presented in one dedicated note to the financial statements. This ensures that users can easily find and compare these measures.

2. Provide a Reconciliation
Each MPM must be reconciled to the most directly comparable IFRS subtotal or total. This reconciliation must show:

The amount of the MPM

The amount of the most directly comparable IFRS subtotal or total

Adjustments between the two, clearly explained

3. Explain Management’s View
The entity must explain:

Why the MPM provides useful information

How the MPM reflects management’s view of performance

The calculation method used

4. Apply Consistency
MPMs must be calculated consistently from period to period. Any changes in calculation must be explained.

5. Present Comparative Information
Comparative information for MPMs must be provided.

Implications for Entities

This requirement brings MPMs into the audited financial statements for the first time. Previously, these measures were often presented outside the financial statements and were not subject to audit. Now, they will be subject to audit scrutiny.

This significantly enhances transparency and accountability. Entities will need to:

Review all MPMs they use in external communications

Ensure consistent definitions and calculations

Prepare reconciliations to IFRS subtotals

Train staff on the new requirements

3. Enhanced Guidance on Aggregation and Disaggregation

IFRS 18 introduces more detailed guidance on how entities should determine the appropriate level of detail in their financial statements. This addresses a long-standing criticism that IAS 1 provided insufficient guidance on aggregation and disaggregation.

The Principles

The new standard establishes two key principles:

1. Aggregation Principle
Items may only be aggregated if they share at least one similar characteristic. This prevents entities from combining dissimilar items simply to reduce disclosure.

2. Disaggregation Principle
Items must be disaggregated if they possess one or more different characteristics and the resulting information is material. This ensures that important distinctions are not obscured.

Characteristics to Consider

When determining whether to aggregate or disaggregate, entities should consider characteristics such as:

Nature of the item (e.g., revenue, cost of sales, administrative expenses)

Function of the item (e.g., operating, investing, financing)

Measurement basis (e.g., fair value, historical cost)

Timing of recognition (e.g., current, non-current)

Impact on Disclosure

These principles will likely result in:

More detailed disclosures where items have different characteristics

Reduced aggregation of dissimilar items

Enhanced transparency for users

Other Significant Changes

Statement of Cash Flows

IFRS 18 also introduces changes to the statement of cash flows, eliminating certain classification choices:

Interest and Dividend Classification

Under IAS 1, entities had choices in how they classified interest and dividends in the statement of cash flows. IFRS 18 eliminates these choices and provides specific guidance:

This eliminates the previous classification choices and enhances comparability across entities.

Statement of Financial Position

IFRS 18 makes limited changes to the statement of financial position. The main change is that entities must now present total assets, total liabilities, and net assets on the face of the statement of financial position.

Statement of Changes in Equity

The statement of changes in equity requirements remain largely unchanged from IAS 1.

Practical Implications for Entities

Implementation Timeline

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted.

Entities will need to:

Assess the impact of the new standard on their financial statements

Train staff on the new requirements

Develop systems to capture the required information

Communicate changes to stakeholders

Key Considerations for Implementation

1. Impact on Systems and Processes
Entities will need to:

Review and potentially modify their chart of accounts

Update financial reporting systems to capture the new categories

Develop processes to identify and disclose MPMs

Establish controls to ensure consistent application

2. Impact on Stakeholder Communications
Entities will need to:

Communicate the impact of IFRS 18 to investors and analysts

Explain changes in presentation and disclosure

Address any concerns about comparability

3. Impact on Performance Measures
Entities that use MPMs in external communications will need to:

Review all MPMs for consistency

Prepare reconciliations to IFRS subtotals

Ensure MPMs are subject to appropriate governance

How Qeeva Advisory Steps In

At Qeeva Advisory, we understand that implementing IFRS 18 can be complex and resource-intensive. Many businesses are struggling to understand the new requirements, assess the impact on their financial statements, and prepare for implementation.

Our Advisory Services provide expert guidance on IFRS 18 implementation. With over 12 years of experience in financial reporting, accounting, and audit, our professionals help you navigate the new requirements and ensure your financial statements are compliant.

Need help with financial reporting? Our Accounting Advisory Services provide specialised support for IFRS implementation, financial statement preparation, and compliance.

For businesses looking to strengthen their financial reporting systems, our Financial reporting and cost control services help you build robust systems that capture the required information.

Our Bookkeeping Services ensure your financial data is accurate and complete — the foundation for compliant financial statements.

And because financial reporting is fundamentally about governance, our Regulatory Compliance and Corporate Compliance & Annual Returns Filing services keep your business in good standing with regulators while you focus on IFRS 18 implementation.

Our Service Methodology

We don’t do generic. We do thorough, transparent, and actionable.

Step 1: IFRS 18 Impact Assessment
We assess the impact of IFRS 18 on your financial statements, systems, and processes. We identify changes required and develop a tailored implementation plan.

This step draws on our Advisory Services expertise and our Accounting Advisory Services knowledge.

Step 2: Financial Statement Restructuring
We help you restructure your statement of profit or loss to comply with the five mandatory categories. We ensure all income and expenses are correctly classified and that mandatory subtotals are presented.

Our Financial reporting and cost control services ensure your financial statements are accurate and compliant.

Step 3: MPM Identification and Disclosure
We help you identify all MPMs used in external communications and develop the required disclosures, including reconciliations to IFRS subtotals.

Our Advisory Services team provides expert guidance on MPM disclosure requirements.

Step 4: System Enhancements
We help you update your financial reporting systems and processes to capture the information required under IFRS 18.

Our Bookkeeping Services ensure your financial data is accurate and complete.

Step 5: Training and Implementation
We train your finance team on the new requirements and support them through the implementation process.

We provide ongoing support through our Advisory Services and ensure your financial statements remain compliant with our Regulatory Compliance services.

Key Takeaways

IFRS 18 represents the most significant change to financial reporting in over 20 years. The new standard fundamentally restructures the statement of profit or loss, introduces mandatory subtotals, requires disclosure of management-defined performance measures, and enhances guidance on aggregation and disaggregation.

The key changes are:

Five mandatory categories in the statement of profit or loss: Operating, Investing, Financing, Income Taxes, Discontinued Operations

Two new mandatory subtotals: Operating Profit and Profit Before Financing and Income Taxes

Management-defined performance measures (MPMs) must be disclosed in a single note with reconciliation to IFRS subtotals

Enhanced guidance on aggregation and disaggregation

Elimination of classification choices in the statement of cash flows for interest and dividends

The key dates are:

Effective date: 1 January 2027

Early adoption permitted

The benefits are clear:

Enhanced comparability across entities

Greater transparency for investors

Reduced opportunities for manipulation

Improved decision-usefulness of financial statements

But the challenges are real:

Implementation complexity

System and process changes

Staff training requirements

Stakeholder communication

The bottom line: IFRS 18 is coming. Entities that prepare early, invest in systems and training, and engage with stakeholders will be best positioned to implement the new standard successfully.

Let’s Talk About Your IFRS 18 Implementation

Implementing IFRS 18 can be complex. At Qeeva Advisory, we understand the challenges businesses face in transitioning from IAS 1 to IFRS 18 — from restructuring financial statements to preparing MPM disclosures and enhancing systems.

Whether you need help with:

Understanding the impact of IFRS 18 on your financial statements

Restructuring your statement of profit or loss to comply with the new requirements

Identifying and disclosing MPMs with reconciliations

Updating financial reporting systems to capture required information

Training your finance team on the new requirements

We’re here to support you every step of the way.

📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799

📧 Email: info@qeeva.com

📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact us today to schedule a consultation. Let us help you navigate the transition to IFRS 18 with confidence.

Suggested Reading from Our Blog

Explore these related articles to deepen your understanding of financial reporting and compliance:

Corporate Compliance and Annual Returns Filing – Ensure your business maintains good standing with the Corporate Affairs Commission.

Financial reporting and cost control – Build robust financial reporting systems that support compliance.

Accounting Advisory Services – Get expert guidance on IFRS implementation and financial reporting.

Related Services

We offer specialised services to help businesses implement IFRS 18 and enhance financial reporting:

Advisory Services – Expert guidance on IFRS 18 implementation, financial reporting, and compliance.

Accounting Advisory Services – Specialised support for IFRS implementation, financial statement preparation, and compliance.

Financial reporting and cost control – Build robust financial reporting systems that capture required information.

Bookkeeping Services – Accurate financial data and records that provide the foundation for compliant financial statements.

Regulatory Compliance – Ensure your business meets all filing requirements and maintains good standing with regulators.

Corporate Compliance and Annual Returns Filing – Maintain good standing with the Corporate Affairs Commission.

Reference Links / Sources

IFRS 18: Presentation and Disclosure in Financial Statements – IFRS Foundation

IFRS 18 replaces IAS 1 – What companies need to know – PwC

IFRS 18: The new standard on presentation and disclosure – Deloitte

IFRS 18: Key changes and impacts – EY

IFRS 18: The new presentation standard – KPMG

IAS 1 vs IFRS 18: Key differences – IAS Plus