IFRS 18: Getting ahead of the curve

Why now matters

IFRS 18—Presentation and Disclosure in Financial Statements—will become mandatory for periods commencing on or after 1 January 2027. While this date may seem distant, entities have  limited time to prepare, particularly because the standard applies retrospectively. Companies will be required to restate 2026 comparative figures, requiring historical data that may not currently be available. Those that treat IFRS 18 as a year-end exercise may risk insufficient data, system gaps, and unreliable comparatives upon adoption. 

Beyond presentation, IFRS 18 reshapes how performance is measured, reported, and governed. The introduction of newly defined income statement categories, formalized disclosures around management-defined performance measures (MPMs), and enhanced disaggregation requirements represents a shift in financial reporting towards greater transparency and comparability. 

What’s changing: The three new categories

IFRS 18 introduces a mandatory structure for the statement of profit or loss, replacing the flexibility that characterized IAS 1. Entities must now classify most income and expenses into the three newly defined categories:

• Operating: Activities central to the entity’s business model
• Investing: Returns from financial assets and investments that generate a return individually and largely independently
• Financing: Costs of funding the entity’s operations

This structure mandates a defined “operating profit” subtotal which is a residual measure derived after allocating items to investing and financing. This is an important change as the “operating profit” metric is widely used in internal KPIs, debt covenants, and external communications. Changes in its composition may create perceived volatility to stakeholders, even where the underlying economics remain unchanged.

Additionally, IFRS 18 formalizes the treatment of MPMs, which are non-IFRS metrics such as “EBITDA” or “adjusted net profit.”

These must now be disclosed with clear definitions, reconciliations to IFRS-defined subtotals, and explanations of year-on-year changes. This moves alternative performance measures from largely unregulated territory into a structured, auditable framework.

A phased approach to implementation

Entities that engage early with a structured, phased approach will be better positioned to implement IFRS 18 in a controlled manner. The table below outlines an illustrative phased approach, key activities, and essential questions to guide your preparation:

Act now

IFRS 18 is more than a presentation update. It is an intentional move towards clearer, more comparable financial reporting that will reshape how your entity measures, reports, and communicates performance. The phased approach outlined above provides a structured roadmap, but success depends on starting immediately.

Entities that delay may face significant risks: insufficient historical data for 2026 comparatives, system gaps that force manual workarounds, covenant breaches triggered by reclassifications, impact on measurement of performance due to change in underlying operating profit, and stakeholder confusion when new metrics are introduced. Conversely, those that engage early will be positioned to implement IFRS 18 in a controlled manner, manage stakeholder expectations, and emerge with clearer, more comparable financial reporting.

With the effective date fast approaching and retrospective application required, the time to act is today. The question is not whether to prepare, but whether to prepare now or scramble later.

By Haresh Kumar, Partner and Duncan O’Sullivan, Director, Accounting and Reporting Assurance, Deloitte Middle East