IFRS 18 Implementation Guide: Phased Roadmap for 2027 Compliance

IFRS 18 replaces IAS 1 for annual periods beginning on or after 1 January 2027, and the window to get ready without painful retrospective restatements is closing fast. This guide is for group reporting teams, CFOs, and controllers at IFRS-reporting companies who need to know not just what the standard requires, but what to do, in what order, and by when.

Key takeaway: If your systems are not capturing 2026 data in the IFRS 18 format by 1 January 2026, you will need to reconstruct that data retrospectively. That reconstruction can take months and requires auditor sign-off. The time to act is now.

What Changes Under IFRS 18 vs IAS 1

IFRS 18 does not change how you measure income or expenses. It changes how you present and disclose them. The standard, issued by the IASB in April 2024, retains the full set of financial statements required under IAS 1: statement of financial position, statement of profit or loss, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes. The core changes are concentrated in three areas.

For most industrial and diversified groups, the income statement restructuring is the most disruptive change. For IR-heavy companies with active investor communications, the Management Performance Measure (MPM) rules will create the most immediate governance work.

The Five Income Statement Categories: What Goes Where

IFRS 18 requires every item of income and expense to be classified into one of five categories: operating, investing, financing, income taxes, and discontinued operations. Two mandatory subtotals must appear: operating profit or loss, and profit or loss before financing and income taxes.

The category definitions matter, and the investing category in particular will surprise diversified groups.

Operating (the residual category)

Operating captures income and expenses from the entity's main business activities, plus anything not classified as investing, financing, income taxes, or discontinued operations. It is the residual bucket, which means your classification discipline in the other categories directly shapes what ends up here.

Investing

Investing captures returns from assets that generate returns independently of the entity's main business activities. In practice, this includes:

• Income from associates and joint ventures accounted for using the equity method
• Dividends and interest from investments not integral to the main business
• Gains and losses on disposal of investment properties or equity investments held for return

For diversified groups with significant associate or JV portfolios, this is the most disruptive reclassification. Income that currently sits in operating profit (or in a vague "other income" line) will move to the investing category, below the operating profit subtotal. Analysts and covenant calculations that reference operating profit will see a different number.

Financing

Financing captures income and expenses from liabilities arising from financing activities, primarily interest on borrowings. For most non-financial entities, this category is relatively straightforward. Financial institutions face a more complex picture because cash and cash equivalents may be integral to their main business, placing them in operating rather than financing.

A practical mapping exercise

Before you can redesign your income statement, you need a line-by-line mapping of every current P&L account to one of the five categories. Do not skip this step or delegate it to a single team. The mapping requires input from finance, tax, treasury, and the business units, and the judgements made here will be reviewed by your auditors.

Common mistake: Applying materiality too early in the mapping exercise and scoping out smaller entities or line items. KPMG's December 2025 preparer panel of over 1,200 participants was explicit: reserve materiality determinations for the end of the project, when the full impact is clearer. Items that look immaterial in isolation can become material when aggregated across a complex group.

The MPM Disclosure Requirement: What IR Teams Need to Know Now

Any non-GAAP subtotal your company communicates publicly will almost certainly qualify as a Management Performance Measure under IFRS 18, and will require formal disclosure in the notes to your financial statements.

The IFRS Foundation defines MPMs as subtotals of income and expenses used in public communications outside financial statements that are not specified in IFRS Standards. That definition captures adjusted EBITDA, underlying operating profit, adjusted earnings per share, and similar measures routinely used in earnings releases, investor presentations, and annual reports.

For each MPM, IFRS 18 requires the entity to:

1. Disclose the MPM in the notes
2. Explain why the measure provides useful information about financial performance
3. Reconcile it to the most directly comparable IFRS-defined subtotal
4. Disclose the tax effect and the effect attributable to non-controlling interests

What an adjusted EBITDA disclosure looks like under IFRS 18

Consider a company that reports "Adjusted EBITDA" in its earnings releases, excluding restructuring charges and share-based compensation. Under IFRS 18, the notes must include a table along these lines:

The note must also explain why management believes excluding restructuring charges and share-based compensation provides a more useful view of underlying performance. This is no longer a voluntary IR communication. It is an audited disclosure.

The IR implication: If your earnings release uses a metric that will look different under IFRS 18 because the operating profit subtotal has changed, you need a proactive communication strategy before your first IFRS 18 financial statements appear. Analysts who model off your current adjusted EBITDA definition will need to understand what has changed and why.

The Retrospective Restatement Trap

IFRS 18 requires full retrospective application. Your 2027 financial statements must include restated 2026 comparatives presented under the new five-category structure, with the new subtotals, and with the operating expenses by nature note.

Here is the trap: if you do not capture 2026 data in the IFRS 18 format as it arises during 2026, you will need to reconstruct it after the fact. That reconstruction means going back through every transaction, re-mapping it to the new categories, rebuilding the nature-of-expense analysis, and getting your auditors comfortable with the methodology. For a complex group, that process can take months and carries significant audit risk.

KPMG's preparer panel confirmed that the retrospective application requirement was one of the two primary drivers pushing companies toward early implementation. Companies that wanted clean 2026 comparatives needed IFRS 18-compliant data capture in place from 1 January 2026.

If your systems are not yet set up to capture data in the new format, the question is not whether to act, but how fast.

The Operating Expenses by Nature Note: A Hidden Data Challenge

IFRS 18 requires a note disclosing operating expenses analysed by nature, even if your income statement is presented by function. This is a new requirement with no equivalent in IAS 1.

For companies whose ERP systems capture costs by cost centre or function (cost of goods sold, selling expenses, administrative expenses), producing a nature-of-expense analysis (employee costs, depreciation, raw materials, etc.) requires either a system change or a manual mapping layer. The manual mapping layer is exactly what KPMG's panelists warned against.

As KPMG's IFRS Institute noted: "Developing a strong IT plan is critical to achieving consistent, scalable reporting and reducing reliance on manual processes." For companies with quarterly or half-year reporting obligations, manual adjustments to produce the nature note every period are not sustainable.

The practical fix is to add nature-of-expense coding to your chart of accounts or cost centre structure so the data is captured at source. This is a chart-of-accounts redesign project, not just a presentation change.

Phased IFRS 18 Implementation Roadmap

Based on lessons from KPMG's December 2025 preparer panel and the IFRS Foundation's supporting materials, a three-phase approach gives most groups the best chance of a clean 2027 filing.

Phase 1: Scoping and Impact Assessment (Complete by Q3 2026)

• Map every P&L line to the five IFRS 18 categories. Document the judgements, especially for borderline items in the investing and financing categories.
• Identify all MPMs used in public communications: earnings releases, investor presentations, annual reports, analyst day materials. This requires finance, IR, and legal to work together.
• Assess system readiness. Can your ERP and consolidation system produce the five-category split and the nature-of-expense note automatically? If not, what changes are needed?
• Run the KPMG IFRS 18 Complexity Scorecard (free, online) to get a structured view of your organisation's specific implementation challenges.
• Engage your auditors. The new classification judgements, particularly around the investing category and MPM identification, will be areas of audit focus. Get their views early, before positions are locked in.
• Do not apply materiality yet. Assess the full scope first.

Phase 2: System and Process Redesign (Q3 2026 to Q1 2027)

• Implement chart-of-accounts changes to capture the five-category split and nature-of-expense data at source. If you are mid-ERP upgrade or CSRD implementation, incorporate IFRS 18 requirements into that project now.
• Update consolidation templates and reporting packages across all group entities, including smaller subsidiaries on non-standard platforms.
• Establish MPM governance. Document each MPM: its definition, calculation methodology, the IFRS subtotal it reconciles to, and the rationale for why it provides useful information. Assign ownership.
• Redesign internal management reporting to align with the new income statement structure, so the external presentation is consistent with how the business is managed.
• Update internal controls to cover the new classification judgements and MPM disclosures. These are new areas of audit risk.
• Prepare investor communication materials explaining how the income statement structure will change and what effect, if any, the reclassifications have on headline metrics.

Phase 3: Dry Run and Stakeholder Alignment (Q1 to Q3 2027)

• Produce a full dry-run set of IFRS 18 financial statements using 2026 data. This is the proof that your systems and processes work end-to-end.
• Present the dry run to the audit committee and external auditors before the year-end close. Identify and resolve any remaining classification questions.
• Finalise MPM note disclosures and reconciliations. Have IR review the investor communication implications.
• Check interim reporting. IFRS 18 applies to interim financial statements in the initial year of application, per IAS 34. Your H1 2027 interim statements must comply, meaning the dry run needs to be complete before your first 2027 interim close.
• Apply materiality. Now that the full impact is clear, make final decisions about which entities or items require deeper analysis.

Should You Early-Adopt IFRS 18?

Early adoption is permitted. The case for it is straightforward: companies that adopt for the year ending 31 December 2026 avoid the retrospective restatement problem entirely, because 2025 becomes the comparative year and 2026 is the first year of application.

The case against early adoption is equally clear: it compresses the implementation timeline significantly and requires your 2026 financial statements to be fully compliant, including the MPM disclosures and the nature-of-expense note. For most groups, the complexity of the project makes early adoption viable only if implementation was already well advanced by mid-2025.

For companies with a 31 December year-end that did not early-adopt for 2026, the mandatory first IFRS 18 financial statements will cover the year ending 31 December 2027, published in early 2028. The 2026 comparatives must be restated.

Practical Resources: Illustrative Statements and Tools

Several resources are worth bookmarking for your implementation team:

• PwC Illustrative Consolidated Financial Statements under IFRS 18: A complete set of financial statements for a fictitious listed company with a 31 December year-end, prepared under IFRS 18. This is the most practical template available for income statement redesign.
• IFRS Foundation standard page: Full standard text, basis for conclusions, effects analysis, illustrative examples, and educational webcasts, all freely accessible to registered users.
• KPMG IFRS 18 Complexity Scorecard: A free online tool providing a personalised assessment of your organisation's implementation challenges. Useful for scoping Phase 1.
• ESMA's February 2026 public statement: ESMA's guidance for European-listed issuers on consistent IFRS 18 application, including interim reporting and ESEF implications. Relevant for any group listed on a European exchange.

For a deeper dive into the standard's technical requirements, including the tax effect calculation for MPMs and sector-specific classification rules, see Finrep's IFRS 18 Presentation and Disclosure Requirements: Practical Guide. For dual reporters or companies with US investors, the IFRS 18 vs ASU 2024-03 comparison covers the key differences between the two income statement reform regimes.

FAQ

When is IFRS 18 mandatory? IFRS 18 is mandatory for annual reporting periods beginning on or after 1 January 2027. For a 31 December year-end company, the first mandatory IFRS 18 financial statements cover the year ending 31 December 2027, published in early 2028. Early adoption is permitted.

Does IFRS 18 change how income and expenses are measured? No. IFRS 18 affects presentation and disclosure only. Recognition and measurement requirements under other IFRS standards are unchanged.

What is the difference between the investing and financing categories? Investing captures returns from assets that generate returns independently of the main business, such as equity-method income from associates and JVs, and returns on non-integral investments. Financing captures income and expenses from liabilities arising from financing activities, primarily interest on borrowings.

Does every non-GAAP measure become an MPM? Not automatically. An MPM is a subtotal of income and expenses used in public communications outside the financial statements that is not specified in IFRS Standards. Internal KPIs not communicated publicly do not qualify. But any adjusted profit measure used in earnings releases, investor presentations, or the annual report almost certainly will.

Can we use manual workarounds instead of system changes? For a small, simple entity with annual-only reporting, manual workarounds may be manageable in year one. For any group with quarterly or half-year reporting, multiple consolidated entities, or automated reporting systems, manual adjustments are not sustainable. KPMG's preparer panel was unambiguous on this point.

How does IFRS 18 affect interim reporting? IFRS 18 applies to interim financial statements in the initial year of application. This means your H1 2027 interim statements, prepared under IAS 34, must comply with the new structure. The dry-run phase must be complete before your first 2027 interim close.

The 2026 data-capture window is the single most important deadline in your IFRS 18 project. Miss it, and the retrospective reconstruction cost will dwarf whatever you would have spent on system changes.