IFRS 18 — Presentation and Disclosure in Financial Statements replaces IAS 1 Presentation of Financial Statements and is effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. It represents the most significant change to income statement presentation in decades — introducing mandatory subtotals, defining the operating profit line in IFRS financial statements for the first time, and establishing new requirements for the presentation of management performance measures (MPMs) disclosed alongside the statutory financial statements.
The practitioner distinction: IFRS 18 does not change the measurement of assets, liabilities, income, or expenses. What changes is where items are presented in the income statement and what subtotals must be disclosed. For most enterprises, the income statement line items will be the same — but the sequence, classification, and mandatory subtotals will change in ways that affect every EPM consolidation output, every board reporting template, and every external financial statement format currently in use.
Key Changes Under IFRS 18
The income statement under IFRS 18 is structured into three defined categories of income and expense:
- Operating: All income and expense that is not classified as investing, financing, or income tax. This category now has a mandatory subtotal — operating profit — that must appear in the face of the income statement. This is the most significant structural change.
- Investing: Income and expense from assets that generate a return independently of the entity’s main business activities — including returns from associate investments and income from cash and cash equivalents.
- Financing: Interest on financing liabilities and other specified financing costs.
A consequential change: IFRS 18 restricts where specific income and expense items can appear — for example, income from cash held for operating purposes (currently classified as operating income by many entities) may need to be reclassified to the investing category. Entities that currently present share of profit of associates within operating profit may need to reclassify this to the investing category.
Management Performance Measures (MPMs)
IFRS 18 introduces a new disclosure requirement for MPMs — non-IFRS financial measures used in public communications (such as adjusted EBITDA, operating EBITDA, or underlying revenue) that are derived from amounts presented in the financial statements. Where an entity discloses MPMs, IFRS 18 requires a reconciliation from the MPM to the most directly comparable IFRS subtotal, in the notes to the financial statements. This affects listed GCC entities that use adjusted earnings metrics in investor communications — a near-universal practice in the region.
How This Connects to EPM
EPM consolidation and reporting applications configured under IAS 1 will require structural reconfiguration before the IFRS 18 effective date. The income statement hierarchy in Oracle FCCS — which determines how P&L accounts roll up into subtotals — must be updated to reflect the new operating/investing/financing category structure and the mandatory operating profit subtotal. Board reporting templates, management pack formats, and investor presentation structures built on the current IAS 1 presentation must also be updated. Finance teams should begin EPM impact assessment for IFRS 18 now, given the configuration changes required and the time needed to test and validate the new presentation across all reporting entities.
What Goes Wrong
The failure with IFRS standard transitions is treating them as a compliance event rather than a systems project. IFRS 16 — which also required significant EPM and ERP configuration changes when it became effective in 2019 — was handled by many GCC enterprises through spreadsheet overlays rather than system reconfiguration. The same approach to IFRS 18 will produce income statement presentations that are manually adjusted to the new format outside the EPM, with no assurance that the adjustments are complete, consistent, and auditable across all reporting entities.
How Loop Wise Solutions Encounters This
We are actively assisting clients in scoping their IFRS 18 EPM impact assessments. The key questions are: which income and expense items in the current P&L hierarchy will be reclassified, which MPMs will require reconciliation disclosures, and what EPM and BI configuration changes are needed to produce the new presentation for all reporting entities simultaneously. Starting this work in 2025 and 2026 is not early. For enterprises with complex group structures and multiple EPM reporting layers, the implementation window is already constrained.
