IFRS 18 Implementation in 2027: A Global Guide for Businesses, CFOs and Finance Professionals

Key Takeaways

• Effective from 2027: IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027, with early application permitted.
• A new structure for financial performance: The standard introduces defined categories for income and expenses and requires the presentation of operating profit or loss and profit or loss before financing and income taxes.
• Greater transparency in performance measures: Qualifying management-defined performance measures (MPMs), such as certain adjusted profit measures, will require specific disclosures and reconciliations.
• Better financial statement presentation: Enhanced aggregation and disaggregation requirements aim to ensure that material financial information is presented clearly and is not obscured by excessive grouping.
• Global implementation, local requirements: Businesses in Pakistan, Saudi Arabia and other jurisdictions must assess the applicable local adoption arrangements and regulatory requirements.
• Preparation should begin early: Companies should review accounting classifications, reporting systems, management KPIs, comparative information and disclosure processes before their first reporting period under IFRS 18.

Introduction: IFRS 18 Is Changing How Businesses Report Financial Performance

Two companies may generate similar revenue and profits but present their financial performance differently. One may report a higher operating profit because of how it classifies certain income and expenses, while another may use a different subtotal to communicate its results.

For investors, lenders and business owners, these differences can make financial statements more difficult to compare.

This is one of the issues that IFRS 18, Presentation and Disclosure in Financial Statements, aims to address.

Issued by the International Accounting Standards Board (IASB) in April 2024, IFRS 18 replaces IAS 1, Presentation of Financial Statements. It introduces a more structured approach to presenting financial performance, specific disclosure requirements for management-defined performance measures, and enhanced principles for the aggregation and disaggregation of financial information. Source: IFRS Foundation.

The standard becomes effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. Its impact will extend beyond the preparation of financial statements to management reporting, financial systems, investor communications and the way businesses explain their results.

For companies operating internationally, the transition also raises an important question: how will the new requirements interact with local regulatory frameworks and group reporting obligations?

This article explains the major changes introduced by IFRS 18, illustrates their practical implications, and examines the implementation landscape in the European Union, Saudi Arabia, Pakistan and other jurisdictions.

1. What Is IFRS 18 and Why Was It Introduced?

IFRS 18 is an accounting standard that establishes requirements for the presentation and disclosure of information in general purpose financial statements.

Its primary objective is to improve the usefulness, transparency and comparability of financial information, particularly information about financial performance.

Although IFRS 18 replaces IAS 1, it does not replace the entire financial reporting framework. Certain requirements previously contained in IAS 1 have been retained in IFRS 18, while others have been relocated to IAS 8, Basis of Preparation of Financial Statements, and IFRS 7, Financial Instruments: Disclosures.

The IASB's focus was on addressing concerns about how companies present their operating results, communicate alternative performance measures and group financial information.

What are the three main changes under IFRS 18?

The standard introduces three principal areas of change:

• Structure of the statement of profit or loss: New defined subtotals and categories for classifying income and expenses.
• Management-defined performance measures (MPMs): Specific disclosures for qualifying performance measures used in public communications to explain management's view of financial performance.
• Aggregation and disaggregation: Enhanced requirements governing how information is grouped, separated and presented in financial statements.

IFRS 18 also introduces limited amendments affecting the statement of cash flows.

An important distinction is that IFRS 18 primarily changes presentation and disclosure. It does not, by itself, change the underlying recognition and measurement requirements for revenue, expenses, assets or liabilities under other IFRS Accounting Standards.

However, changing how income and expenses are classified can affect the subtotals presented in the statement of profit or loss. These changes may influence how users interpret and compare financial performance.

2. Key Changes Introduced by IFRS 18

2.1 New Structure of the Statement of Profit or Loss

One of the most significant changes under IFRS 18 is the introduction of a more structured approach to the statement of profit or loss.

The standard requires income and expenses to be classified into five categories, subject to the detailed requirements and exceptions in the standard:

• Operating
• Investing
• Financing
• Income taxes
• Discontinued operations

These categories are designed to provide a clearer picture of the different sources of a company's financial performance.

The operating, investing and financing categories are particularly important because companies have historically used different approaches to presenting certain income and expenses.

For example, a company may earn income from its core business activities as well as from investments and financial assets. Presenting these items within a consistent structure can help users distinguish operating performance from other sources of income.

However, the classification is not determined solely by the name of an income or expense item. IFRS 18 includes specific requirements for determining the appropriate category, and the classification of certain items depends on whether investing in assets or providing financing to customers is the main business activity of the entity.

This distinction can be particularly relevant for banks, lenders, investment businesses and other entities with specified main business activities.

What does this mean for businesses?

Finance teams should review their existing income and expense classifications rather than simply transferring the current income statement into a new format.

The exercise may require changes to account mappings, financial statement templates, reporting procedures and supporting documentation.

2.2 Operating Profit and Profit Before Financing and Income Taxes

IFRS 18 introduces two defined subtotals in the statement of profit or loss:

• Operating profit or loss
• Profit or loss before financing and income taxes

These subtotals are intended to improve consistency in how companies communicate their financial performance.

Under IFRS 18, operating profit or loss is the total of all income and expenses classified in the operating category.

Profit or loss before financing and income taxes is the total of operating profit or loss and all income and expenses classified in the investing category.

These are defined subtotals, not simply labels that management can use for any preferred calculation.

This distinction matters because businesses may currently calculate operating profit using different approaches. The new requirements establish a common starting point for comparison, while recognizing that differences in business activities and applicable classification requirements will remain relevant.

Illustrative example: How reported subtotals may change

Consider a company with the following financial results:

Financial statement item	Amount
Revenue	1,000
Operating expenses	(700)
Operating profit	300
Investment income	20
Financing expenses	(50)
Profit before income tax	270

Illustrative monetary units; simplified for explanation.

Under the assumptions used in this example, operating profit is 300 and profit before income tax is 270.

The example is not intended to establish the classification of every item for every entity. Actual classification must be determined by applying IFRS 18 to the company's specific circumstances.

The important point is that the operating profit subtotal must be determined using the standard's requirements. If the company's previous presentation classified income or expenses differently, the new operating profit figure may differ from the subtotal previously reported.

That does not necessarily mean the company's underlying economic performance has changed. It may reflect a change in presentation.

2.3 Management-Defined Performance Measures (MPMs)

Another major feature of IFRS 18 is the introduction of specific disclosure requirements for management-defined performance measures.

Businesses frequently use measures that are not defined by IFRS Accounting Standards to communicate financial performance. Common examples include adjusted operating profit and adjusted profit measures.

These measures can provide useful information, but the same label may represent different calculations in different companies.

For example, two businesses may both report adjusted operating profit, but one may exclude restructuring costs while the other may make additional adjustments for other expenses or income.

Without sufficient explanation, users may find it difficult to understand what these measures represent or compare them with IFRS-defined subtotals.

IFRS 18 addresses this issue by requiring disclosures for measures that meet the definition of management-defined performance measures.

A measure generally falls within the definition when it is:

• A subtotal of income and expenses;
• Used in public communications outside financial statements to communicate management's view of an aspect of the financial performance of the entity as a whole; and
• Not listed in IFRS 18 or specifically required to be presented or disclosed by IFRS Accounting Standards.

The detailed requirements must be assessed against the standard. Not every non-IFRS measure, KPI or use of the term EBITDA automatically qualifies as an MPM.

What disclosures are required for MPMs?

For qualifying measures, IFRS 18 requires information that helps users understand the measure and how it compares with the relevant IFRS-defined figures.

This includes:

• A description of the aspect of financial performance communicated by the measure;
• An explanation of why management considers the measure useful;
• An explanation of how the measure is calculated;
• A reconciliation to the most directly comparable subtotal or total specified or required by IFRS Accounting Standards;
• The income tax effect and effect on non-controlling interests for each item in the reconciliation, together with the required explanation of how the tax effects are determined.

The standard also requires the relevant MPM disclosures to be presented in a single note to the financial statements.

For example, if a company publicly communicates adjusted operating profit that meets the definition of an MPM, it may need to explain the adjustments made and reconcile the measure to the relevant IFRS-defined subtotal.

This provides greater transparency about how management evaluates financial performance.

It is also important to distinguish the scope of MPM disclosures from general marketing or communication measures. IFRS 18 defines public communications for this purpose, and its application requires judgement. The IFRS Foundation's explanatory material identifies management commentary, press releases and investor presentations as examples of public communications, while social media posts are excluded from that definition.

2.4 Enhanced Aggregation and Disaggregation Requirements

IFRS 18 strengthens the principles governing how financial information is grouped and presented.

Aggregation means combining items with shared characteristics. Disaggregation means separating items when their differences are important to users of financial statements.

Both are necessary for meaningful reporting.

If a company combines too many different expenses into one broad category, important information may be hidden. Conversely, presenting excessive detail can make financial statements difficult to read and understand.

IFRS 18 aims to ensure that material information is not obscured by inappropriate aggregation and that information is presented at an appropriate level of detail.

For example, a company may need to reconsider whether a broad expense category provides sufficient information about its operating costs or whether additional disaggregation is necessary.

The assessment should consider materiality, the nature of the items and the information users need to understand the entity's financial performance.

These requirements may affect both the primary financial statements and the notes.

3. Does IFRS 18 Change Net Profit?

This is an important question for business owners, CFOs and investors.

It does not, by itself, introduce a general change to the calculation of revenue, expenses or net profit under other applicable IFRS Accounting Standards.

However, the classification of income and expenses can affect the subtotals reported in the statement of profit or loss.

For example, operating profit presented under IFRS 18 may differ from an operating profit measure previously reported by the same company if the earlier calculation used different classifications or a different definition.

This distinction matters because investors and lenders may use operating profit, EBITDA and other performance measures when assessing profitability, debt-servicing capacity, valuation and financial risk.

Businesses should therefore explain changes in presentation clearly and ensure that historical comparisons are prepared in accordance with the transition requirements.

4. IFRS 18 Implementation Around the World

IFRS 18 was issued by the IASB, but its implementation must be understood within each jurisdiction's reporting and regulatory framework.

The international effective date does not mean that every country automatically adopts the standard on identical terms. Local endorsement procedures, regulatory requirements and reporting frameworks must be considered separately.

IFRS 18 implementation landscape at a glance

Jurisdiction	Instrument / authority	Key dates	Position
International (IASB)	IFRS 18, Presentation and Disclosure in Financial Statements	Annual reporting periods beginning on or after 1 January 2027; early application permitted	Replaces IAS 1; retrospective application in accordance with IAS 8
European Union	Commission Regulation (EU) 2026/338	Dated 13 February 2026; to be applied no later than the first financial year starting on or after 1 January 2027	Formally endorsed into the EU framework
Saudi Arabia	SOCPA adoption; Capital Market Authority (CMA) announcement	SOCPA: 26 December 2024. CMA: 30 June 2026. Mandatory for periods beginning on or after 1 January 2027	Listed joint-stock companies may adopt early during 2026, with statutory statements continuing under IAS 1
Pakistan	SECP S.R.O. 2444(I)/2025	December 2025	Adoption of IFRS 18 and IFRS 19 notified; each entity should assess the applicable reporting framework

4.1 International effective date and transition

IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027. Early application is permitted, and an entity applying it early must disclose that fact.

The standard requires retrospective application in accordance with IAS 8, subject to the specific transition provisions.

This means that companies should not wait until they prepare their first IFRS 18 financial statements to begin the implementation process.

For entities with a calendar-year (e.g. 31 December) reporting period, the 2027 financial statements will generally include comparative information for 2026 prepared on the required IFRS 18 basis.

The standard also requires a reconciliation for each line item in the statement of profit or loss between the amounts presented under IAS 1 and the restated amounts under IFRS 18 for the comparative period immediately preceding initial application.

The exact requirements should be assessed against the standard and the entity's reporting circumstances.

4.2 European Union: Formal endorsement

The European Union provides an example of how international standards are incorporated into a regional regulatory framework.

Commission Regulation (EU) 2026/338, dated 13 February 2026, amended the EU's endorsed international accounting standards framework to include IFRS 18.

The regulation requires companies to apply the amendment no later than the beginning of their first financial year starting on or after 1 January 2027.

This is an important distinction: the IASB issues IFRS Accounting Standards, while the EU follows its own endorsement process.

For groups operating in the EU and other markets, finance teams should ensure that their implementation plans reflect the applicable reporting requirements in each jurisdiction.

Official reference: Commission Regulation (EU) 2026/338.

4.3 Saudi Arabia: SOCPA adoption and CMA implementation arrangements

Saudi Arabia is particularly relevant for businesses operating in the Gulf region.

The Saudi Organization for Chartered and Professional Accountants (SOCPA) adopted IFRS 18 on 26 December 2024.

On 30 June 2026, the Capital Market Authority (CMA) announced arrangements allowing listed joint-stock companies on the Saudi Exchange (Tadawul) to adopt IFRS 18 early during 2026.

The CMA also established requirements for preliminary assessment disclosures in approved interim and annual financial statements for reporting periods beginning on or after 1 April 2026.

Under the announcement, listed companies may publish financial statements prepared under IFRS 18 for early-adoption purposes during 2026 while continuing to prepare and publish their approved statutory financial statements under IAS 1 in accordance with the stated arrangements. Mandatory application of IFRS 18 begins for reporting periods starting on or after 1 January 2027.

The CMA also emphasized the importance of board oversight of implementation progress.

These arrangements make IFRS 18 a current implementation issue for Saudi listed companies, not simply a future accounting change.

Official reference: Saudi CMA announcement on IFRS 18 early adoption.

What should Saudi businesses do now?

Listed companies should assess the expected impact of IFRS 18, review their existing financial statement formats and prepare the disclosures required by the CMA.

Other Saudi businesses should determine their obligations based on the applicable reporting framework, SOCPA requirements and any relevant parent-company or lender reporting instructions.

For subsidiaries reporting to international groups, it may be necessary to prepare IFRS 18-compatible reporting information before the date on which their own local statutory reporting obligations change.

Businesses should also assess whether their accounting systems can support the revised classifications and comparative information.

4.4 Pakistan: SECP notification and implementation considerations

Pakistan has also taken a formal step towards implementation.

The Securities and Exchange Commission of Pakistan (SECP) published S.R.O. 2444(I)/2025 concerning the adoption of IFRS 18 and IFRS 19 in December 2025.

IFRS 18 replaces IAS 1 and establishes the new presentation and disclosure requirements. IFRS 19 is a separate standard concerning reduced disclosure requirements for qualifying subsidiaries without public accountability.

The distinction between the two standards is important. IFRS 19 does not replace IFRS 18's presentation requirements; it addresses disclosure requirements for entities that qualify and elect to apply it under the applicable framework.

For Pakistani businesses, implementation should begin with determining the financial reporting framework applicable to the entity and reviewing the precise requirements of the SECP notification and any relevant sector-specific rules.

This is especially important because the reporting obligations of listed companies, other regulated entities, private companies and subsidiaries may not be identical.

Practical implications for Pakistani companies

Businesses should consider the following areas:

• Financial statement presentation: Review the current statement of profit or loss and identify changes required by IFRS 18.
• Chart of accounts: Assess whether existing account codes and reporting mappings can support the new categories and subtotals.
• Management reporting: Identify differences between internal operating profit measures and the subtotals required by IFRS 18.
• Performance measures: Review relevant public communications for qualifying MPMs and identify the required disclosures.
• Comparative information: Ensure the finance team can prepare the necessary comparative figures and reconciliations.
• Audit readiness: Document significant classification judgements and maintain supporting schedules.

Official reference: SECP — S.R.O. 2444(I)/2025, Adoption of IFRS 18 and IFRS 19.

4.5 What about other jurisdictions?

Other countries may follow IFRS Accounting Standards directly, adopt them through local legislation, or apply locally endorsed versions.

For multinational groups, the relevant question is not simply whether IFRS 18 has been issued internationally. It is whether the applicable financial reporting framework requires the entity to apply the standard and whether any local transition or regulatory requirements affect the timetable.

A jurisdiction-by-jurisdiction assessment should consider:

• Local adoption or endorsement status;
• The applicable effective date;
• Any local modifications or regulatory instructions;
• The entity's statutory reporting obligations;
• Group reporting requirements imposed by a parent company;
• Requirements for comparative information and implementation disclosures.

Companies should avoid assuming that a standard's international effective date automatically determines every local reporting obligation.

5. Who Will Be Affected by IFRS 18?

The impact will vary according to the company's current reporting practices, the nature of its activities and the applicable reporting framework.

However, several groups should pay particular attention.

Who will be affected by IFRS 18?

Group	What they should consider
Listed companies	Listed companies may need to revise financial statement presentation, assess MPM disclosures and explain the effects of implementation to investors.
Multinational groups	Groups operating across multiple jurisdictions may need to align reporting templates, consolidation procedures and group reporting instructions.
Banks and financial institutions	Entities whose main business activities include providing financing to customers or investing in assets may need to consider the specific classification requirements relevant to those activities.
Private companies and subsidiaries	Their obligations will depend on the applicable reporting framework and any requirements imposed by parent companies, lenders or other stakeholders.
CFOs, finance directors and accounting teams	These professionals will need to coordinate technical accounting assessments, system changes, comparative information, staff training and external reporting.
Auditors and advisers	They may be involved in reviewing classification judgements, supporting documentation, disclosures and implementation readiness within the scope of their respective engagements.

6. IFRS 18 Implementation Roadmap: How Should Businesses Prepare?

A structured implementation plan can help businesses avoid last-minute changes and reduce the risk of reporting errors.

IFRS 18 implementation roadmap

Step	Action
Step 1: Assess the applicable reporting requirements	Identify the entities within scope and establish which financial reporting framework applies. Review local adoption arrangements, regulatory obligations and group reporting requirements.
Step 2: Perform a gap analysis	Compare current financial statements and reporting practices with IFRS 18. Focus on the statement of profit or loss, the classification of income and expenses, the new defined subtotals, MPMs and aggregation and disaggregation.
Step 3: Assess the financial and operational impact	Determine how the new presentation may affect reported subtotals, internal KPIs, management reports and the interpretation of historical performance. Separate presentation changes from changes in underlying recognition and measurement.
Step 4: Review systems and processes	Assess whether accounting software, ERP systems, consolidation tools and reporting templates can support the new requirements. Update the account mappings and data processes where necessary.
Step 5: Review management-defined performance measures	Identify relevant public communications and assess whether the measures used by management meet the definition of MPMs. Develop the required explanations, calculations and reconciliations for qualifying measures.
Step 6: Prepare comparative information	For a calendar-year entity first applying IFRS 18 in 2027, the 2026 comparative period is particularly important. Finance teams should test whether they can produce the information needed for retrospective application and the required reconciliations.
Step 7: Train the finance team and engage stakeholders	Ensure that finance personnel understand the standard's requirements. Brief senior management, the audit committee and other relevant stakeholders on significant expected changes. Coordinate with external auditors and advisers as appropriate.
Step 8: Conduct a dry run	Use historical financial information to prepare a draft IFRS 18 statement of profit or loss and supporting disclosures. Review classifications, subtotals, reconciliations and data quality before the first reporting period under the standard.
Step 9: Monitor implementation progress	Maintain clear responsibility for outstanding actions, document significant judgements and monitor relevant regulatory guidance. The programme should be proportionate to the size and complexity of the organization.

7. Common Mistakes to Avoid During IFRS 18 Implementation

Common mistakes at a glance

Common mistake	Why it matters
Treating IFRS 18 as a formatting exercise.	Updating the income statement template without reviewing the underlying classifications and disclosures may leave important gaps.
Assuming that net profit will automatically change.	The standard primarily changes presentation and disclosure, although subtotals may change because of revised classification requirements.
Assuming every adjusted measure is an MPM.	The definition and scope requirements must be applied to each measure.
Ignoring public financial communications.	Relevant investor presentations, earnings announcements and other communications should be reviewed.
Leaving comparative information until year-end.	Retrospective application requires preparation for the comparative period.
Applying one approach across every jurisdiction without verification.	Local adoption and regulatory requirements must be assessed separately.
Failing to involve IT and senior management.	Implementation may require changes to systems, reporting processes and governance arrangements, not just accounting policies.

8. Frequently Asked Questions About IFRS 18

When does IFRS 18 become effective?

IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027. Early application is permitted, subject to the applicable requirements.

Does IFRS 18 replace IAS 1?

Yes. IFRS 18 replaces IAS 1, Presentation of Financial Statements, while certain requirements previously contained in IAS 1 have been retained or moved to other standards.

What are the main changes under IFRS 18?

The three main changes concern the structure of the statement of profit or loss, disclosures about management-defined performance measures, and enhanced aggregation and disaggregation requirements.

Does IFRS 18 change net profit?

Not by itself through a general change in recognition and measurement. However, revised classifications can affect subtotals such as operating profit and profit before financing and income taxes.

Does IFRS 18 apply in Pakistan?

Pakistan's SECP published S.R.O. 2444(I)/2025 concerning the adoption of IFRS 18 and IFRS 19. Each entity should assess the applicable local reporting framework and regulatory requirements.

What is the position in Saudi Arabia?

SOCPA adopted IFRS 18 in December 2024. The Saudi CMA announced early-adoption arrangements for listed joint-stock companies in 2026, with mandatory application for financial reporting periods beginning on or after 1 January 2027.

What should businesses do first?

Begin with a scope assessment and gap analysis. Identify the required changes to financial statement presentation, performance measures, reporting systems and comparative information.

Conclusion: IFRS 18 Requires Preparation, Not Just Compliance

IFRS 18 represents an important development in financial reporting. Its focus is on making financial performance easier to understand and compare through defined subtotals, clearer disclosures about management-defined performance measures, and improved presentation of financial information.

For businesses, the implementation challenge is broader than revising the statement of profit or loss. It involves reviewing reporting systems, assessing performance measures, preparing comparative information and coordinating the work of finance, IT, management and other stakeholders.

The international effective date is 1 January 2027, but the timing and details of implementation must be assessed against the requirements applicable in each jurisdiction. Developments in the European Union, Saudi Arabia and Pakistan demonstrate why businesses should understand both the international standard and the local regulatory position.

Organizations that start early will have more time to identify gaps, test their reporting processes and prepare the required disclosures. Those that delay may face unnecessary pressure during the first reporting cycle.

At Muhammad Abbas & Co. Chartered Accountants (MAC), we recognize that effective financial reporting requires more than technical compliance. It requires an understanding of how accounting requirements affect management information, reporting processes and business decisions.

Businesses preparing for IFRS 18 can benefit from an early assessment of their reporting framework, current presentation practices and implementation requirements.

For further insights on IFRS, financial reporting and accounting developments, follow MAC Insights.

References and further reading

• IFRS Foundation: IFRS 18 — Presentation and Disclosure in Financial Statements
• IFRS Foundation: IFRS 18 Key Terms
• European Commission: Commission Regulation (EU) 2026/338
• Saudi Capital Market Authority: Decision on Early Adoption of IFRS 18 by Listed Companies
• Securities and Exchange Commission of Pakistan: S.R.O. 2444(I)/2025 — Adoption of IFRS 18 and IFRS 19

About Muhammad Abbas & Co. Chartered Accountants

Muhammad Abbas & Co. Chartered Accountants is a partner-led professional services firm providing Finance, Tax and Advisory solutions to businesses across multiple industries.

Our services include:

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