IFRS 18 will reshape the income statement. Are you ready for the changes?
In April 2024, the International Accounting Standards Board (IASB) published IFRS 18 – Presentation and Disclosure in Financial Statements. It introduces significant changes to how companies present their financial performance. The goal is to make profit and loss reporting more consistent across companies.
For small and mid-cap AIM-listed companies, this is especially relevant. You may not have large finance teams, but investors, analysts and regulators will still expect the same level of preparation and transparency as they do from large multinationals.
IFRS 18 hasn’t yet been endorsed in the UK, but it’s expected to apply from 1st January 2027. To meet the requirements, you’ll also need to prepare comparative figures ahead of that date.
The Three Big Changes in IFRS 18
Standardised income statement structure
IFRS 18 introduces a prescribed structure for the statement of profit or loss, including three new mandatory subtotals:
- Operating profit
- Profit before financing and income taxes
- Profit before tax
These create greater comparability between companies, particularly given the significant flexibility currently available to IFRS reporters in terms of how the P&L is presented.
Categories for income and expenses
Profit and loss items will now be grouped into five defined categories: operating, investing, financing, income taxes and discontinued operations. For smaller companies, this could mean some reallocation and redefinition of line items, particularly where there are unusual or one-off activities.
Management-defined performance measures (MPMs)
IFRS 18 formally acknowledges non-GAAP performance measures used by management, such as “adjusted EBITDA”. These MPMs will need to be disclosed in a structured note, reconciled to IFRS-defined subtotals, and clearly explained. This will improve transparency but could become a compliance risk if not approached carefully.
What smaller listed companies should do now
Start your impact assessment now
Review your current income statement and identify what will change under the new structure. You should also assess whether your current “adjusted” performance metrics will qualify as MPMs under IFRS 18 and be very clear on the objectives of any bespoke performance metrics.
Engage your audit committee and board early
These changes will affect how performance is reported and understood by stakeholders. Start board-level discussions now, particularly around MPM governance and disclosure. These are not box-ticking exercises; they will shape how performance is judged, both internally and externally.
Upgrade systems and chart of accounts
Ensure your accounting systems can handle the new categorisations and subtotals. This may require updates to the chart of accounts, not something to leave to the last minute. Making changes too late could lead to delays or errors that undermine confidence in your reporting.
Get ahead with investor communication
Prepare early communication strategies around the new subtotals and MPMs. Investors will want to understand the comparability and credibility of your numbers. If your numbers tell a different story than before, make sure investors understand why and that they can still trust the narrative.
Plan for restatement
The standard requires retrospective application, so you’ll need to present comparatives in the new format. This means having systems in place by early 2026 at the latest. Planning now gives you the best chance of meeting that requirement without disruption.
Why acting now puts you in a stronger position
IFRS 18 will affect not just how you report but how others understand your performance. Taking time to think it through now can help avoid confusion later, both inside your business and with the people who rely on your numbers.
If you’d like to discuss what IFRS 18 means for your business, get in touch with Joseph Brewer, Audit Partner in our London office.
Disclaimer: This article is intended as a general guide only. Neither the author nor Gravita accepts any responsibility for any loss incurred by individuals acting or refraining from action based on the information provided in this publication.
