IFRS 18 vs IAS 1: How the New Standard Replaces IAS 1 in 2027 — and How Accountants Should React

On 9 April 2024 the International Accounting Standards Board (IASB) issued IFRS 18 Presentation and Disclosure in Financial Statements, the standard that formally replaces IAS 1 Presentation of Financial Statements. IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. The biggest update to IFRS financial reporting in a generation does not change how profit is measured. It rewrites how financial performance is presented and disclosed. The IFRS 18 vs IAS 1 differences are significant enough that finance teams should already be re-mapping their income statements, chart of accounts and reporting packs.

This guide compares IFRS 18 vs IAS 1, summarises the key news points from the IASB and the major firm guidance published since, and gives accountants a practical readiness plan for the 2027 effective date.

IFRS 18 vs IAS 1: why the IASB replaced a 20-year-old standard

IAS 1 gave companies wide flexibility in structuring the income statement. There was no defined operating profit subtotal, no standard framework separating operating from investing and financing activity in the P&L, and management-defined “adjusted” measures lived outside the audited accounts. The result was a comparability problem: two companies in the same industry could present materially different income statements, making line-by-line comparison unreliable. The IFRS 18 vs IAS 1 gap in comparability is exactly what the new standard closes.

IFRS 18 came out of the IASB’s Primary Financial Statements project, launched in response to investors’ concerns about comparability and transparency. Most of IAS 1 carries over with limited wording changes — some paragraphs were retained in IFRS 18, some moved to IAS 8 (retitled Basis of Preparation of Financial Statements) and to IFRS 7 Financial Instruments: Disclosures. The IFRS 18 vs IAS 1 break is therefore targeted, not a wholesale rewrite of financial statement architecture.

Quick comparison — IFRS 18 vs IAS 1:

Change #1: five categories in the statement of profit or loss

The structural core of IFRS 18 vs IAS 1: every item of income and expense must be classified into one of five categories.

Two wrinkles matter in practice. First, results from equity-accounted investees are presented in the investing category, below operating profit. Second, there is a specified main business activity exception with no IAS 1 equivalent. Entities whose main business is investing in assets (investment companies, real estate funds) or providing financing to customers (banks, captive finance arms) classify certain items in operating rather than investing or financing. The assessment happens at reporting-entity level, so group entities may classify differently from the consolidated P&L — consolidation adjustments are likely.

Change #2: mandatory subtotals on the face of the P&L

The IFRS 18 vs IAS 1 shift continues on the face of the statement: three defined subtotals are now required, none of which IAS 1 mandated.

1. Operating profit or loss — now a defined, comparable figure
2. Profit or loss before financing and income taxes
3. Profit or loss

Operating expenses must also be analysed on the face of the income statement — by nature, by function, or on a mixed basis, whichever gives the most useful structured summary. Entities using any by-function presentation face new disclosures reconciling that analysis.

Change #3: management-defined performance measures (MPMs)

The IFRS 18 vs IAS 1 changes extend beyond the face of the statements. Measures management uses in public communications to describe performance — adjusted EBITDA, underlying profit, recurring revenue and similar — are now formally defined as MPMs. Under IFRS 18 they must be disclosed in a single note to the financial statements. The note reconciles each MPM to the most directly comparable IFRS totals and explains income tax and non-controlling interest effects. The note sits within the audited financial statements. Analysts gain a regulated bridge from IFRS numbers to the headline figures companies quote.

Change #4: stricter aggregation and disaggregation

IFRS 18 gives the primary financial statements and the notes defined, complementary roles: the primary statements provide a useful structured summary, the notes provide material information that does not belong on the face. Items must be grouped by shared characteristics, dissimilar items should not be bundled, and labelling line items as “other” is discouraged — preparers must justify the label or find a more informative one.

Change #5: knock-on amendments to cash flows, balance sheet and EPS

• Statement of cash flows: under the amended IAS 7, the indirect method starts from the operating profit or loss subtotal rather than total profit. Classification options for interest and dividends paid/received are eliminated.
• Balance sheet: goodwill is presented as a separate line item.
• Earnings per share: additional disclosures apply where operating profit includes unusual items.

IFRS 18 vs IAS 1: what stays the same

For all the headlines, the IFRS 18 vs IAS 1 overlap is larger than the differences. Recognition and measurement rules are untouched, net profit does not change, and the following continue essentially as before:

• The complete set of financial statements (financial position, performance, changes in equity, cash flows, notes)
• Going concern assessment
• Current vs non-current classification of assets and liabilities
• Materiality principles
• Comparative period presentation

Net profit will not change simply because IFRS 18 is adopted — but the route to that figure looks different, and boards, lenders and analysts will expect an explanation of the new subtotals.

How accountants should react: the IFRS 18 readiness plan

Firm guidance from the Big Four and mid-tier networks converges on the same message: start in 2026. Because IFRS 18 applies retrospectively, the IFRS 18 vs IAS 1 switch shows up first in your comparatives — the first IFRS 18 accounts must present restated prior-year figures. For a 31 December year-end, FY2026 comparatives must be capable of being restated under the new presentation when FY2027 accounts are filed.

1. Run an impact assessment now. Identify how the categories, subtotals and disclosure requirements affect your current income statement, reporting packs and KPIs.
2. Re-map the chart of accounts. Map every existing income statement line to the five IFRS 18 categories — operating, investing, financing, income taxes, discontinued operations.
3. Inventory your MPMs. List every adjusted or alternative measure used in external communications and decide which remain, and how they reconcile to IFRS totals.
4. Check the systems. Confirm your accounting system captures income and expenses at the level of detail the new categories and the face-of-P&L expense analysis require.
5. Review the knock-ons. Loan covenants, remuneration metrics, budgeting templates and board dashboards may reference subtotals that move — flag any that change meaning.
6. Dry-run the comparatives. Restate 2026 figures on the IFRS 18 basis before year-end so problems surface early, not during audit season 2027.
7. Brief stakeholders. Finance team, board, audit committee — what changes, when, and why totals such as “operating profit” now mean something specific.
8. Decide on early adoption. Early application is permitted; some groups will benefit from adopting early to avoid a cliff-edge transition.

The systems angle most teams miss

The IFRS 18 vs IAS 1 transition is usually described as a reporting exercise, but the hardest part is upstream: your bookkeeping and ERP must classify every transaction into the right category at capture time, not at year-end. If your chart of accounts cannot separate financing interest from operating overheads, or investing income from main-business revenue, the restatement becomes a manual archaeology project.

This is where a properly configured ERP earns its keep. In Odoo, account groups, analytic tags and customised financial reports can be mapped directly to the five IFRS 18 categories so that 2026 comparatives build themselves. Businesses already running integrated bookkeeping on an ERP will find the transition manageable; businesses reconciling spreadsheets will not. If you are upgrading systems in 2026 anyway, aligning the chart of accounts to IFRS 18 in the same project is the efficient path — our overview of Odoo Community for growing businesses and our remote bookkeeping services both cover how structured ledgers make reporting changes routine instead of painful.

Timeline for a 31 December year-end

Here is how the IFRS 18 vs IAS 1 timeline maps out for a 31 December year-end.

Frequently asked questions: IFRS 18 vs IAS 1

Sources: IFRS Foundation (ifrs.org), IAS Plus/Deloitte, EY, KPMG, BDO, BKL (2024–2026 guidance).

Transitioning from IAS 1 to IFRS 18 starts in the ledger, not the reporting pack. The IFRS 18 vs IAS 1 handover will be smooth for teams whose books already classify transactions cleanly — and painful for everyone else. If your chart of accounts needs re-structuring before 2027, talk to Taxample about our bookkeeping service or explore implementing Odoo Community with proper accounting configuration — structured books today are restated comparatives tomorrow.

Last updated: October 26, 2026