IFRS 18 vs IAS 1: In January 2024, the International Accounting Standards Board (IASB) introduced IFRS 18 – Presentation and Disclosure in Financial Statements, a major update that replaces IAS 1. This change marks a fundamental shift in how companies communicate their financial performance.
If you’re a CFO, accountant, investor, or financial analyst, understanding the impact of IFRS 18 vs IAS 1 is crucial for forward-looking decision-making.
What Is IFRS 18, and Why Is It Replacing IAS 1?
IAS 1, in place since 2007, allowed flexibility in how entities presented their profit or loss — but this led to inconsistencies, limited comparability, and vague subtotals.
IFRS 18 addresses these issues by:
- Standardizing income statement structure
- Requiring clear subtotals like Operating Profit
- Mandating disclosures for non-IFRS measures (MPMs)
IFRS 18 vs IAS 1: At a Glance
| Feature | IAS 1 | IFRS 18 |
|---|---|---|
| Standardized structure | ❌ Flexible | ✅ Mandatory categories: Operating, Investing, Financing |
| Operating profit subtotal | ❌ Optional or varied | ✅ Required |
| MPM (Management-defined Performance Measures) regulation | ❌ Not defined | ✅ Mandatory disclosure and reconciliation |
| Unusual/infrequent items | ⚠️ Discretionary | ✅ Mandatory explanation |
| Comparability across companies | ⚠️ Low | ✅ High |
| Effective date | Active | Replaces IAS 1 from Jan 1, 2027 |
What’s New Under IFRS 18?
1. Standardized Profit or Loss Structure
IFRS 18 introduces three mandatory categories:
- Operating
- Investing
- Financing
This new format enhances clarity and forces consistent classification of income and expenses across companies.
2. Mandatory Operating Profit Subtotal
For the first time, IFRS mandates a clearly defined Operating Profit subtotal, which is especially critical for:
- Investors benchmarking performance
- Analysts modeling operational efficiency
3. Regulation of Management Performance Measures (MPMs)
Previously unregulated under IAS 1, IFRS 18 now:
- Defines MPMs
- Requires reconciliation to IFRS totals
- Mandates explanation of adjustments
This limits misuse of adjusted figures and enhances transparency.
4. Improved Disclosure Requirements
Entities must now disclose:
- Unusual income or expenses and explain why they are not expected to recur
- Judgments applied in classification
- Subtotals not required by IFRS (if presented)
What Stays the Same?
IFRS 18 doesn’t change how you recognize or measure revenue, assets, or liabilities. The following principles remain unchanged from IAS 1:
- Accrual basis
- Going concern assumption
- Materiality and consistency
- Statement types (financial position, cash flows, etc.)
This ensures continuity while modernizing presentation.
Transitioning to IFRS 18: What You Need to Know
Effective Date:
- Mandatory for periods starting on or after January 1, 2027
- Early adoption is permitted
Retrospective Application:
- Prior periods must be restated (unless impracticable)
- Audit trail and documentation are essential
Operational Impact:
- Redesign financial reporting systems
- Recode chart of accounts
- Update internal dashboards and KPIs
- Train finance and investor relations teams
- Adjust external communication strategies
Who Is Affected by IFRS 18?
| Stakeholder | Key Impact |
|---|---|
| CFOs / Controllers | Strategic planning and system redesign |
| Auditors | New requirements for MPM audit trail |
| Investors / Analysts | Improved visibility and performance benchmarking |
| Public Companies | Higher scrutiny in financial statement structure |
| ERP Vendors / IT | System updates to reflect new classifications |
IFRS 18 vs IAS 1: Why It Matters
| Area | Impact |
|---|---|
| Transparency | Boosts investor trust with clearer structure |
| Comparability | Standardization across industries improves analysis |
| Accountability | Forces companies to justify adjusted performance metrics |
| Investor Confidence | Easier to benchmark operational efficiency |
Bottom Line: IFRS 18 doesn’t just improve formatting — it redefines how financial performance is communicated globally.
Ready Your Organization: Transition Checklist
✅ Identify internal MPMs
✅ Map existing P&L items to new structure
✅ Reclassify comparative periods
✅ Train staff on IFRS 18 implications
✅ Engage auditors early
✅ Update investor reporting templates
The shift from IAS 1 to IFRS 18 represents the most significant change to financial statement presentation in decades.
While the recognition rules stay the same, how results are presented — especially operating profit and performance metrics — will fundamentally change.
Start preparing now to avoid future compliance risks and lead with clarity.
Written by Ronalds
