Introduction
On April 9, 2024, the International Accounting Standards Board (IASB) issued IFRS 18 — a brand-new standard that replaces IAS 1, fundamentally reshaping how financial performance is presented in financial statements.
While the recognition and measurement rules remain unchanged, IFRS 18 introduces a new structure, subtotals, and mandatory categories that will significantly affect how users read and interpret financial information.
This post explores:
- The difference between IAS 1 and IFRS 18
- Why IFRS 18 was introduced
- What’s changing across each financial statement
- A clear, beginner-friendly example
- Key takeaways for accountants and companies
IAS 1 vs IFRS 18: What’s the Difference?
| Feature | IAS 1 | IFRS 18 |
|---|---|---|
| Focus | General format guidance | Detailed, standardized structure and subtotals |
| Statement of Profit or Loss | Flexible categories and subtotals | Mandatory subtotals and 3 defined categories |
| Operating Profit | Not required | Required subtotal |
| Management Performance Measures (MPMs) | Not regulated | Strict disclosure and reconciliation required |
| Comparability | Limited across companies | Enhanced across companies and industries |
| Effective Date | Existing standard | Applies from Jan 1, 2027 (early adoption allowed) |
Why Did IASB Introduce IFRS 18?
The IASB introduced IFRS 18 in response to:
- Inconsistent presentation of operating results
- Lack of transparency around custom KPIs (non-GAAP measures)
- Users’ demand for greater comparability and clarity
- Need to standardize what counts as “operating,” “investing,” and “financing” results
IAS vs IFRS: General Difference
- IAS (International Accounting Standards): Older standards issued before 2001 by the International Accounting Standards Committee (IASC)
- IFRS (International Financial Reporting Standards): Newer standards issued post-2001 by the IASB
- Over time, IAS standards are being replaced by IFRS, like in this case with IAS 1 → IFRS 18
How Each Financial Statement Will Change Under IFRS 18
1. Statement of Profit or Loss – Mandatory Categories
IFRS 18 requires the income statement to be split into three defined categories with required subtotals:
- Operating: Income/expenses from core business activities
- Investing: Related to assets that generate income but are not used in operations
- Financing: Expenses related to raising finance (e.g., interest)
✅ Required Subtotals:
- Operating profit
- Profit before financing and income tax
- Profit before tax
- Net profit
2. Statement of Financial Position (Balance Sheet)
IFRS 18 does not require major layout changes but encourages:
- Clear distinction between current and non-current items
- Optional alignment of items with operating/investing/financing structure
3. Statement of Cash Flows
Although not structurally changed, entities are encouraged to:
- Align cash flow categories with P&L categories (e.g., investing/financing)
4. Notes – Management Performance Measures (MPMs)
If entities use custom KPIs in investor presentations (like “adjusted EBITDA”), they must:
- Disclose them in the notes
- Reconcile them with IFRS-defined subtotals
- Explain calculation and changes over time
- Apply them consistently
Profit and Loss Comparison: IAS 1 vs IFRS 18 (Line by Line)
| Line Item | IAS 1 Example | IFRS 18 Example |
|---|---|---|
| Revenue | $100,000 | $100,000 (Operating Category) |
| Cost of Sales | ($60,000) | ($60,000) (Operating Category) |
| Gross Profit | $40,000 | (Not mandatory under IFRS 18) |
| Selling & Admin Expenses | ($10,000) | ($10,000) (Operating Category) |
| R&D Expenses | ($5,000) | ($5,000) (Operating Category) |
| Other Operating Income | $2,000 | $2,000 (Operating Category) |
| Operating Profit (new!) | (Optional subtotal) | $27,000 (Required) |
| Gain on Disposal of Equipment | $3,000 | $3,000 (Investing Category) |
| Profit Before Financing and Tax | (Not shown separately) | $30,000 (Required subtotal) |
| Interest Expense | ($4,000) | ($4,000) (Financing Category) |
| Profit Before Tax | $26,000 | $26,000 |
| Income Tax Expense | ($6,000) | ($6,000) |
| Net Profit | $20,000 | $20,000 |
✅ Same bottom line — just clearer structure under IFRS 18
Transition & Implementation
- Effective Date: January 1, 2027
- Issued On: April 9, 2024
- Application: Retrospective (with some reliefs)
- Preparation Required:
- Revise chart of accounts
- Update reporting systems
- Educate finance teams and stakeholders
Key Takeaways
✅ IFRS 18 is not just cosmetic — it changes how performance is structured
✅ Adds clarity, consistency, and comparability to financial reporting
✅ Start preparing now: align your systems and educate your team
✅ If you’re reporting custom metrics, MPM rules now apply
