IFRS 18 Changes: IAS 1 vs IFRS 18 Compared Side by Side

IFRS 18 replaces IAS 1 Presentation of Financial Statements for annual periods beginning on or after 1 January 2027. Net profit does not change. What changes is the structure, labelling, and mandatory disclosures around how you get there. For CFOs and group controllers currently mid-implementation, the real question is not "what is IFRS 18" but "what specifically is different, and which of those differences require a decision from us?"

This article answers that question with a direct comparison: IAS 1 vs IFRS 18, across the three areas that matter most operationally. For a full definition-level primer, see IFRS 18 Explained. For the phased implementation roadmap, see IFRS 18 Transition Plan.

Key takeaway: IFRS 18 does not restate your bottom line. It restructures the path to it, brings your non-GAAP measures into audit scope, and requires 2026 comparative data to be captured in the new format now, before the standard is mandatory.

What Is IFRS 18 Replacing, and What Carries Forward?

IFRS 18 replaces IAS 1, which had been in place since 2007 (itself a revision of the original 1975 standard). The IASB issued IFRS 18 in April 2024 after a standard-setting project that began around 2016, driven by investor feedback that IAS 1's flexibility made cross-company comparisons of financial performance unreliable.

Most of IAS 1 carries forward. The general presentation requirements for the balance sheet, statement of changes in equity, notes structure, and going concern assessment are largely unchanged. IFRS 18 also brings consequential amendments to IAS 7 Statement of Cash Flows and IAS 8 Basis of Preparation of Financial Statements.

What does not carry forward is the freedom companies had to structure the income statement however they liked. That flexibility is precisely what IFRS 18 eliminates.

IAS 1 vs IFRS 18: The Three Core Changes Compared

The table below summarises the three structural changes. Each is explained in detail in the sections that follow.

1. Income Statement Structure: From Flexible to Five Categories

Under IAS 1, companies could present the income statement in almost any format they chose. Some used a gross profit subtotal; others did not. Some showed EBIT; others showed operating profit with their own definition. There was no requirement for any specific subtotal between revenue and profit before tax. This flexibility was the problem: investors could not compare "operating profit" at Company A with "operating profit" at Company B because the two figures were constructed differently.

Under IFRS 18, all income and expenses must be classified into one of five categories:

1. Operating (the residual category: everything not classified elsewhere)
2. Investing (returns from assets that generate income independently of other resources, e.g. interest on cash, dividends from equity investments, rental income from investment properties)
3. Financing (income and expenses from liabilities that exist purely to raise finance, e.g. interest on bank loans, plus unwinding of discount on certain other liabilities)
4. Income taxes (as defined by IAS 12)
5. Discontinued operations (as defined by IFRS 5)

Three subtotals become mandatory on the face of the income statement:

• Operating profit or loss (a newly defined term)
• Profit or loss before financing and income taxes
• Profit or loss

The critical shift is that "operating profit" is now a defined term under IFRS, applicable consistently across all companies in over 140 jurisdictions. As EY describes it, IFRS 18 "represents the most significant changes to the presentation of financial performance in recent times."

The hardest classification judgment: specified main business activities (SMBAs)

The investing and financing categories have a carve-out that creates genuine complexity. If a company's main business activity is investing in assets (e.g. an investment entity or real estate company) or providing finance to customers (e.g. a bank or leasing company), certain items that would otherwise sit in investing or financing are reclassified to operating.

A worked example makes this concrete:

For diversified groups where some subsidiaries have SMBAs and others do not, the classification at consolidated level may differ from the operating company level. This is one of the most operationally complex judgments in the standard, and it requires a deliberate group-level assessment, not just a rollup of subsidiary classifications. For a detailed walkthrough of how to classify every P&L line, see IFRS 18 Operating, Investing and Financing Categories.

Specific items with prescribed classification rules that often catch teams off-guard:

• Foreign exchange differences: classified in the same category as the item that gave rise to them (FX on a trade receivable is operating; FX on a loan liability is financing)
• Fair value gains or losses on derivatives: follow the category of the hedged item or the underlying exposure
• Income and expenses from associates and joint ventures: always in investing, regardless of whether investing is an SMBA

2. Management Performance Measures: Non-GAAP Enters the Audit Room

Under IAS 1, companies could publish any non-GAAP measure they liked in earnings releases, investor presentations, and annual report narrative sections. These measures sat outside the audited financial statements. Auditors had no formal remit over them.

Under IFRS 18, a defined subset of non-GAAP measures becomes subject to mandatory disclosure inside the audited financial statements. These are called management performance measures (MPMs).

The MPM definition is deliberately narrow. A measure qualifies as an MPM only if it is:

• A subtotal of income and expenses (not a ratio, per-share figure, or balance sheet metric)
• Used in public communications outside the financial statements
• Reflective of management's view of an aspect of the overall financial performance of the entity as a whole (segment-level measures are excluded)

So "adjusted EBIT" disclosed in an earnings release almost certainly qualifies. "Return on equity" does not (it is a ratio). "Adjusted revenue by segment" does not (it is segment-level).

What the MPM note must contain

For each MPM, KPMG confirms that companies must provide a single note explaining:

1. Why the measure provides useful information to users
2. How it is calculated (the adjustments made and why)
3. A reconciliation to the most directly comparable IFRS 18 subtotal or IFRS-required total

This note is subject to audit. That changes the governance dynamic significantly. Adjustments that were previously described in a press release with minimal scrutiny now need to be defensible to an auditor applying professional skepticism to a primary financial statement note.

The strategic decision your IR and finance teams face right now

IFRS 18 does not prohibit non-GAAP measures. It does not force you to stop using "adjusted operating profit" or "underlying EBIT." What it does is require that if you use such a measure in public communications, you bring it into the audited statements with full reconciliation and explanation.

That creates a genuine strategic choice: continue using the measure and accept the MPM disclosure regime, or stop using it publicly and avoid triggering the requirement. Neither option is obviously right. The answer depends on how central the measure is to your investor narrative, how defensible the adjustments are under audit scrutiny, and whether the reconciliation note will raise more questions than it answers.

For a step-by-step guide to building a compliant MPM reconciliation note, see IFRS 18 MPM Reconciliation.

Key takeaway: If your company currently publishes "adjusted EBIT," "underlying operating profit," or any similar income-and-expense subtotal in earnings releases or investor presentations, that measure will almost certainly become an MPM under IFRS 18. The reconciliation note will be audited. Decide now whether to embrace it or retire it.

3. Aggregation and Disaggregation: The End of the "Other" Line

Under IAS 1, aggregation guidance was general. Companies routinely bundled disparate items into "other income" or "other expenses" without detailed explanation. Investors had limited ability to understand what was inside those buckets.

Under IFRS 18, the aggregation and disaggregation requirements apply across all primary financial statements, covering assets, liabilities, equity, revenue, expenses, and cash flows. The principle is that items must be aggregated or disaggregated based on shared characteristics to provide useful structured summaries.

Practically, this means:

• Companies are explicitly discouraged from labelling items as "other"
• If "other" is used, additional disclosure is required explaining what is inside it
• Material information must not be obscured by aggregation in the notes
• The guidance applies to the notes as well as the face of the financial statements

For many companies, this will require a line-by-line review of existing note disclosures and primary statement formats to identify where aggregation is currently obscuring material information.

The Comparative Period Restatement Requirement: The Urgency Most Teams Are Missing

This is the operational fact that the top-ranking articles on IFRS 18 do not mention, and it is the most time-sensitive issue for finance teams right now.

IFRS 18 requires retrospective application with comparative period restatement. For companies with a December year-end adopting on 1 January 2027:

• The first mandatory IFRS 18 financial statements cover the year ending 31 December 2027
• The 2026 comparative year must be restated and presented under IFRS 18
• That means 2026 data must be captured in the new five-category format throughout 2026, before the standard is mandatory

If your ERP or consolidation system is not yet set up to tag income and expenses by the new IFRS 18 categories, you will need to reconstruct 2026 data manually at year-end. That is a significant and avoidable burden. The time to fix the data capture problem is now, in Q3/Q4 2026, not in early 2028 when the first IFRS 18 statements are being prepared.

KPMG hosted a practical implementation insights event on IFRS 18 in May 2026, indicating that companies are actively working through these challenges with the effective date approaching.

Early Adoption: Should You?

Early adoption of IFRS 18 has been permitted since the April 2024 publication date. The decision is not straightforward.

For most mid-to-large companies, early adoption is unlikely to be worth the operational acceleration unless there is a specific investor relations or governance reason to move first. The more important point is that even without early adoption, 2026 data capture in IFRS 18 format is not optional.

Contracts and Covenants: The Legal Risk Most Articles Skip

IFRS 18 changes how line items are labelled and structured on the income statement. If your debt covenants, management incentive plans, or other contractual arrangements reference financial statement line items by name, those references may no longer map cleanly to the new IFRS 18 structure.

For example, a covenant defined by reference to "operating profit" as currently presented under IAS 1 may produce a different number under the IFRS 18 definition of operating profit, depending on what your company currently includes or excludes from that subtotal. The same applies to management bonus plans tied to "EBIT" or "underlying operating profit."

This is a legal and commercial risk that requires proactive review of material contracts before the 2027 effective date. The review should identify which definitions are affected, whether they need to be renegotiated, and what the financial impact of the reclassification would be under the new structure.

IFRS 18 Changes: What Finance Teams Must Do Before 2027

Based on the 1 January 2027 effective date, here is the minimum viable action plan for a December year-end company:

By end of Q3 2026 (now)

• Complete impact assessment: identify all P&L lines and their IFRS 18 category classification
• Determine whether any group entities have SMBAs and what that means at consolidated level
• Identify all non-GAAP measures used in public communications and assess which qualify as MPMs
• Review material contracts for references to financial statement line items

By end of Q4 2026

• Configure ERP/consolidation systems to capture income and expenses by the five IFRS 18 categories (this enables 2026 comparative data capture)
• Draft the MPM note for each qualifying measure and begin auditor pre-engagement
• Decide on operating expense presentation method (by nature, by function, or mixed)
• Brief the audit committee on the MPM audit implications

By end of Q2 2027

• Prepare draft IFRS 18 income statement and notes using 2026 comparative data
• Validate classification judgments with external auditors
• Brief equity analysts and investor relations on the change in operating profit definition and how it compares to current non-GAAP measures
• Finalise any covenant or incentive plan renegotiations

By end of Q3 2027

• Complete dry-run of full IFRS 18 financial statements
• Resolve any remaining classification or aggregation judgments
• Confirm MPM reconciliation notes are audit-ready

For the detailed phased roadmap with stakeholder mapping and system requirements, see IFRS 18 Transition Plan and DISE and IFRS 18 Reporting Technology.

FAQ

What are the main changes in IFRS 18? Three structural changes: (1) a mandatory five-category classification of all income and expenses with three required subtotals including a defined "operating profit"; (2) management performance measures (MPMs), which bring qualifying non-GAAP subtotals into the audited financial statements with reconciliation notes; and (3) enhanced aggregation and disaggregation guidance that limits the use of "other" line items.

What is IFRS 18 replacing? IFRS 18 replaces IAS 1 Presentation of Financial Statements, effective for annual periods beginning on or after 1 January 2027. IAS 1 had been in place since 2007. Much of IAS 1 carries forward; the income statement structure and non-GAAP disclosure regime are the primary areas of change.

Does IFRS 18 change net profit? No. Net profit (the bottom line) does not change. What changes is how results are structured, labelled, and disclosed on the path from revenue to net profit.

Which non-GAAP measures become MPMs under IFRS 18? Any subtotal of income and expenses that management uses in public communications outside the financial statements and that reflects management's view of overall financial performance. Ratios, per-share figures, balance sheet metrics, and segment-level measures are excluded. "Adjusted EBIT" or "underlying operating profit" disclosed in earnings releases almost certainly qualifies.

Do we need to restate 2026 comparatives? Yes. IFRS 18 requires retrospective application. For December year-end companies, the 2026 financial year becomes the comparative period in the first IFRS 18 statements. That means 2026 data must be captured in the new format throughout 2026, before the standard is mandatory.

What is a specified main business activity and does it affect us? An SMBA is a main business activity that involves either investing in particular types of assets or providing finance to customers. If your company has an SMBA, certain items that would otherwise sit in the investing or financing categories are reclassified to operating. Banks, leasing companies, and investment entities are the clearest cases. Diversified groups with financing subsidiaries need a deliberate group-level assessment.