IFRS financial statements: prepare for a major change from 2027
If your business prepares financial statements under IFRS Accounting Standards, it’s important to know about a significant change that applies to accounting periods starting on or after 1 January 2027. IFRS 18 will not change how your profit is measured, but will change how your financial performance is presented and explained.
This may mean a different-looking income statement, new required subtotals, clearer disclosure around adjusted performance measures and revisiting how your financial information is captured and reported.
Why now is the time to plan ahead
The IFRS 18 accounting standard replaces IAS 1 and applies for annual reporting periods beginning on or after 1 January 2027, with earlier adoption permitted.
Although this may sound some way off, comparative information will need to be presented in the accounts on the new basis when IFRS 18 is first applied. For affected businesses with a 31 December year end, this means 2026 comparatives will need to be capable of being restated under the new presentation requirements.
That makes early planning important. The transition is unlikely to be just a year-end disclosure exercise for many businesses. It may require changes to your reporting packs, consolidation processes, chart of accounts mapping, internal controls and stakeholder communications.
Key changes
The main impact of IFRS 18 is on presentation and disclosure, rather than recognition and measurement. Your business should expect:
- A more structured income statement: income and expenses will be classified into defined categories, including operating, investing and financing, together with separate sections for income taxes and discontinued operations. This is intended to make performance reporting more consistent and comparable.
- New required subtotals: entities will need to present specified subtotals, including operating profit and profit before financing and income taxes.
- Management-defined performance measures: certain performance measures used in public communications, such as adjusted profit measures, will need to be disclosed in a single note and reconciled to IFRS figures.
- More detailed analysis of income and expenses: IFRS 18 includes enhanced aggregation and disaggregation requirements, meaning some entities may need to provide greater transparency over the nature of expenses and avoid combining dissimilar items.
- Restated comparatives: comparative information will need to be presented on the new basis when IFRS 18 is first adopted.
Net profit will not change simply because IFRS 18 is adopted. However, the route to that profit figure may look different; and the way your performance is described to boards, investors, lenders and other stakeholders may need careful explanation.
What you need to do now
Carrying out an impact assessment should identify how the new categories, subtotals and disclosure requirements under IFRS 18 will affect your current income statement, reporting packs and key performance measures.
Professional guidance can help you to take practical steps before 2027. We recommend:
- Mapping existing income statement lines to the new IFRS 18 categories
- Identifying any adjusted or alternative performance measures used in your external communications
- Checking whether systems and charts of accounts capture information at the right level of detail
- Considering the impact on board reporting, investor communications, loan covenants, remuneration arrangements and KPIs
- Planning how comparative information will be restated
- Briefing your finance team, board and audit committee on what will change and when
The earlier this work starts, the easier it should be to avoid last-minute changes close to the first reporting deadline.
Are FRS 101 preparers impacted?
If your business prepares IFRS financial statements under the FRS 101 accounting standard (reduce disclosure framework), the introduction of IFRS 18 will affect you too.
The extent of the impact will vary. Entities that prepare Companies Act-format profit and loss accounts may experience relatively limited changes; those using IFRS-style adapted formats could see more significant presentation impacts and should assess the effect of the new requirements.
The UK Financial Reporting Council has exempted qualifying FRS 101 entities from the new management-defined performance measure disclosures and from certain detailed expense disaggregation requirements.
How BKL can help
We appreciate how daunting it can feel to adapt to new accounting rules while continuing business as usual. We’re here to support you through the transition to IFRS 18, from an initial impact assessment through to detailed implementation. We can help you to:
- Assess how the new presentation requirements apply to your business
- Map income and expenses to the new categories
- Review management-defined performance measures
- Plan comparative restatements
- Prepare clear communications for boards, investors, lenders and other stakeholders
To discuss how IFRS 18 could affect your financial statements, please speak to your usual BKL contact or get in touch with David Campbell using the form below.
Contact David
Frequently asked questions
What is IFRS 18 and why does it matter?
IFRS 18 is a new accounting standard that changes how financial performance is presented and disclosed in IFRS financial statements. It replaces IAS 1 and introduces a more structured income statement, mandatory performance subtotals and enhanced disclosure requirements.
Although it doesn’t change how profits are calculated, it changes how those profits are presented and explained. This means businesses may need to update reporting processes, systems and stakeholder communications well before the first reporting period under the new standard.
Which businesses need to comply with IFRS 18?
IFRS 18 applies to entities that prepare financial statements under IFRS Accounting Standards. This includes many listed companies, groups with international reporting requirements and UK entities using IFRS-based reporting frameworks.
Businesses using FRS 101 should also assess the implications of IFRS 18, as changes to IFRS standards can affect entities applying the reduced disclosure framework. The extent of the impact will depend on how financial statements are currently presented.
When should businesses start preparing for IFRS 18?
Businesses should begin preparing as soon as possible. IFRS 18 applies to annual periods beginning on or after 1 January 2027, but comparative information will need to be presented on the new basis when the standard is first adopted.
For organisations with a 31 December year-end, this means 2026 comparative figures may need to be restated. Early preparation can help avoid rushed changes to reporting systems, internal processes and stakeholder reporting.
Will IFRS 18 affect EBITDA, adjusted profit and other KPIs?
Potentially, yes. While the underlying financial results may not change, the presentation of income and expenses may alter the way certain performance measures are viewed, calculated or communicated.
Businesses should review key performance indicators (KPIs), adjusted profit measures, board reporting metrics and lender reporting requirements to ensure they remain consistent, understandable and appropriately documented under the new framework.
What are management-defined performance measures under IFRS 18?
Management-defined performance measures (MDPMs) are performance metrics used by management in public communications to explain financial performance, such as adjusted operating profit or adjusted EBITDA.
Under IFRS 18, qualifying measures must generally be disclosed in a single note and reconciled back to the relevant IFRS figures. The aim is to improve transparency and help users understand how management’s performance measures relate to statutory financial results.
Could IFRS 18 affect bank covenants, investor reporting or executive remuneration?
Yes, it could. Many financing arrangements, bonus schemes and investor communications reference accounting metrics or reported financial performance.
Even where underlying profits remain unchanged, changes in presentation and reporting categories may require businesses to revisit covenant calculations, incentive arrangements, board reporting packs and investor communications. Reviewing these areas early can help identify and manage any unintended consequences.
What is the biggest misconception about IFRS 18?
A common misconception is that IFRS 18 changes how profit is calculated. In reality, the standard is primarily focused on presentation and disclosure rather than recognition and measurement.
Net profit does not automatically increase or decrease because IFRS 18 is adopted. However, financial statements may look significantly different, and stakeholders may need support to understand the new presentation of performance.
Will businesses need to make changes to their finance systems?
Many organisations are likely to need at least some system and process changes. IFRS 18 may require more detailed analysis of income and expenses, revised account mappings and different reporting outputs.
Businesses should assess whether existing ERP systems, consolidation tools, chart of accounts structures and management reporting processes capture information at the level of detail needed to support the new disclosure requirements.
How does IFRS 18 improve comparability between businesses?
One of the main objectives of IFRS 18 is to make financial statements easier to compare across organisations. The introduction of defined reporting categories and mandatory subtotals helps create greater consistency in how financial performance is presented.
This should provide investors, lenders, analysts and other stakeholders with a clearer basis for evaluating performance across different businesses and sectors.
How can businesses assess the impact of IFRS 18?
An impact assessment is usually the best starting point. This involves reviewing the current income statement, reporting structures, performance measures, systems and stakeholder reporting requirements against the new IFRS 18 rules.
Early assessment can identify areas requiring system changes, process updates, comparative restatements or enhanced disclosures. BKL’s accounting advisory team can help your business to evaluate the practical implications and develop an implementation plan tailored to your reporting.
