IFRS 18 Implementation Guide: Phased Roadmap to 2027

This guide is for CFOs, group controllers, and external reporting teams who are now inside the 2026 parallel-run window. IFRS 18 is mandatory for annual periods beginning on or after 1 January 2027, which means your 2027 financial statements need IFRS 18-compliant 2026 comparatives. If your systems are not running in parallel today, you are already behind.

A KPMG survey of over 2,600 IFRS preparers in Q1 2025 found that approximately 80% had not yet started an implementation project. That gap has real consequences: IFRS 18 is not a disclosure tweak. It is a transformation of your income statement, your chart of accounts, your non-GAAP measure regime, and potentially your debt covenants and executive pay.

Key takeaway: IFRS 18 does not change how you measure profit. It changes how you present and disclose it. But that distinction does not make implementation simple, it makes it deceptively complex.

What IFRS 18 Actually Requires

IFRS 18 replaces IAS 1 and introduces three structural changes that drive the entire implementation workload.

First, the income statement must be reorganised into five defined categories: operating, investing, financing, income taxes, and discontinued operations. The operating category is a residual: anything that does not meet the definition of the other four goes there. Two new mandatory subtotals must appear regardless of your current format: operating profit, and profit before financing and income taxes.

Second, management-defined performance measures (MPMs) must be disclosed in the notes with a reconciliation to the nearest IFRS-defined subtotal. An MPM is any subtotal of income and expenses that management uses in public communications to convey its view of financial performance for the entity as a whole. Think adjusted EBITDA, underlying operating profit, or normalised margin. If you use it in a press release or investor presentation, it almost certainly qualifies.

Third, operating expenses must be disaggregated by nature in a new note to the financial statements. This is a brand-new disclosure that did not exist under IAS 1, and it requires data granularity that many ERP systems do not currently capture.

IFRS 18 also introduces limited amendments to IAS 7 on cash flows, and its aggregation and disaggregation principles affect all primary financial statements and notes.

The Four-Phase Implementation Roadmap

The phased approach below is grounded in KPMG's implementation roadmap and the firsthand experience of preparers who presented at KPMG's December 2025 panel of over 1,200 participants.

Phase 1: Assessment (Complete by Q2 2026 at the latest)

The assessment phase has four workstreams running in parallel:

1. Income statement mapping. Take every line item in your current statement of profit or loss and map it to one of the five IFRS 18 categories. Pay particular attention to foreign exchange differences, interest income on cash balances, and intra-group charges, all of which may land differently under IFRS 18 than under your current presentation.
2. MPM identification. Compile every non-GAAP measure your company uses in earnings releases, investor presentations, annual reports, and management commentary. Apply the MPM test to each one (see the decision tree below). This is the most judgment-intensive step and the one where auditors will push back hardest.
3. New disclosure gap analysis. Identify what the new operating expense by nature note will require and whether your current systems can produce it. This is often where the IT problem surfaces.
4. System capability assessment. Audit your ERP and consolidation platform against the data granularity IFRS 18 demands. Can your chart of accounts support the five categories at the transaction level? If not, how large is the gap?

One critical rule from preparer panels: do not apply materiality at this stage. As KPMG's December 2025 preparer panel confirmed, materiality should not drive decisions early in the project. Assess the full scope first, then apply materiality at the end when you know what you are dealing with. Companies that apply materiality too early underestimate the scope and build solutions that break when auditors review them.

Phase 2: Design and Build (Q2 to Q3 2026)

Once the assessment is complete, the design phase translates findings into system and process changes.

Chart of accounts restructuring is typically the centrepiece. Your chart of accounts must support classification of every income and expense item into the correct IFRS 18 category at the transaction level. Top-side journal entries and manual reclassifications are not a viable long-term solution, particularly if you report quarterly or semiannually. As KPMG's preparer panel warned, manual workarounds are difficult to sustain at scale and create control risks that auditors will flag.

IT budget timing matters here. IT budget cycles often run 12 to 18 months ahead. If you have not already secured budget for ERP or consolidation system changes, you are behind schedule. Companies currently running other transformation projects (ERP upgrades, CSRD implementation) should consider folding IFRS 18 into that work rather than running a separate workstream.

Subsidiary involvement must be addressed at this phase, not later. IFRS 18 requires classification judgments to be made from the perspective of the reporting entity, which varies by level of consolidation. A subsidiary may classify rental income as operating at its own level, while the consolidated group must classify the same item as investing. That difference requires a consolidation reclassification adjustment, and it must be built into your group reporting package, not patched manually at year-end. Subsidiaries on non-standard platforms or with diverse IT systems will need specific guidance and potentially additional data collection processes.

Stakeholder engagement should also begin in this phase. The key groups beyond the core external reporting team include:

• Treasury (covenant review)
• HR and remuneration committee (executive pay plan review)
• Investor relations (analyst communication planning)
• Internal audit (control framework updates)
• IT (system build and testing)
• External auditors (MPM pre-clearance)

Phase 3: Parallel Run (Q3 to Q4 2026)

The parallel run is the most critical phase and the one most companies underestimate. To produce IFRS 18-compliant 2026 comparative figures for your 2027 annual report, your systems must be running in IFRS 18 format for the full 2026 financial year. That means the parallel run must be live no later than Q3 2026 for a December year-end.

During the parallel run, you produce financial data in both the legacy format and the IFRS 18 format simultaneously. This serves three purposes: it validates that your system changes work correctly, it builds the comparative data you will need for 2027, and it surfaces classification errors before they appear in audited statements.

For quarterly or semiannual reporters, the parallel run also tests whether your classification and disaggregation processes can be executed at interim reporting frequency without manual intervention. If they cannot, you have a system problem that needs to be fixed before go-live.

Phase 4: Go-Live (2027 Annual Statements)

Go-live is your first set of IFRS 18-compliant financial statements, published for annual periods beginning on or after 1 January 2027. These statements must include restated 2026 comparatives in IFRS 18 format, which is why the parallel run in 2026 is not optional.

Early adoption is permitted and must be disclosed. Preparers at KPMG's December 2025 panel identified two main reasons to adopt early: the sheer complexity of the project rewards more lead time, and early adoption in 2025 or 2026 avoids the need to restate comparative periods retrospectively. For groups with complex structures, early adoption is worth serious consideration.

Implementation Timeline at a Glance

How to Identify Management-Defined Performance Measures (MPMs)

An MPM is a subtotal of income and expenses that management uses in public communications to convey its view of financial performance for the entity as a whole. The key word is public: if the measure appears in an earnings release, an investor presentation, a results webcast, or the front half of an annual report, it is almost certainly an MPM.

Use this decision tree for each non-GAAP measure your company publishes:

1. Is it a subtotal of income and expenses (not a ratio, not a per-share figure, not a cash flow measure)? If no, it is not an MPM.
2. Does management use it in public communications? If no, it is not an MPM.
3. Does it purport to convey management's view of financial performance for the entity as a whole? If yes, it is an MPM and triggers the IFRS 18 disclosure requirements.

Measures that typically qualify: adjusted EBITDA, underlying operating profit, normalised profit before tax, core earnings.

Measures that typically do not qualify: revenue per employee, net debt, free cash flow, earnings per share (these are ratios, per-share figures, or cash flow measures rather than income and expense subtotals).

Once identified, each MPM requires a reconciliation to the nearest IFRS-defined subtotal or total, a tax effect calculation, and an explanation of why the measure reflects management's view of performance. Engage your auditors on MPM identification before the parallel run begins. This is the area where auditors are most likely to challenge your conclusions, and pre-clearance conversations in Q2 or Q3 2026 are far less painful than audit-time disputes.

The Operating Profit Problem: Covenants and Remuneration

IFRS 18's defined operating profit will often differ from the operating profit figure your company currently reports. As KPMG's Ingo Zielhoff and Kayla Molaro note, this change may affect KPI targets, debt covenants, remuneration agreements, and budgeting and performance reporting systems that reference operating profit.

The practical steps:

1. Covenant review. Pull every debt agreement that references operating profit, EBIT, or EBITDA. Determine whether the defined term tracks IFRS-reported figures or is defined independently in the agreement. If it tracks IFRS, the IFRS 18 reclassification may change the covenant calculation and potentially trigger a breach or a tighter headroom position. Start lender conversations early, before the 2027 go-live creates a fait accompli.
2. Remuneration plan review. Executive incentive plans that reference operating profit or operating margin need to be reviewed by HR and the remuneration committee. A target set against the old operating profit definition may be materially easier or harder to hit under IFRS 18. This is a governance issue, not just an accounting one.
3. Budgeting and forecasting systems. Any planning tool that uses operating profit as an input or output will need to be recalibrated. This is often overlooked until the first budget cycle after go-live.

The Subsidiary Reclassification Problem

This is the most technically underserved area of IFRS 18 implementation, and it catches groups by surprise. IFRS 18 requires classification judgments to be made from the perspective of the reporting entity. That entity changes depending on whether you are preparing subsidiary-level or consolidated group statements.

A worked example: a subsidiary owns a property it leases to a third party. From the subsidiary's perspective, this is a main business activity, so rental income is classified as operating. From the consolidated group's perspective, the same property is an asset generating income largely independently, so the same rental income must be classified as investing. The subsidiary reports operating; the group must reclassify to investing at consolidation.

This requires a consolidation adjustment, and it must be systematic, not a year-end patch. The fix is to build the reclassification into the group reporting package so subsidiaries flag items that require group-level reclassification, and the consolidation system applies the adjustment automatically. Manual top-side entries will not scale, particularly for groups with dozens or hundreds of consolidated entities.

Subsidiaries are also critical for retrospective comparative data. Their cooperation and accurate transaction-level reporting are essential to producing correct prior-period figures under IFRS 18.

EU Endorsement and the ESMA Dimension

EU-listed companies have additional regulatory context to track. EFRAG assessed IFRS 18 as meeting the EU IAS Regulation technical endorsement criteria and concluded it is conducive to the European public good, with no adverse effects on the European economy, financial stability, or economic growth.

ESMA issued a public statement in February 2026 urging issuers to proceed with implementation on a timely basis, noting that IT system changes, management report updates, and communication strategy revisions all require lead time. ESMA also confirmed that expected material effects from IFRS 18 should be disclosed in interim and annual financial reports for periods ending before 1 January 2027, meaning your 2026 interim and annual reports should already be discussing IFRS 18 transition impacts.

For EU-listed companies that also file Form 20-F with the SEC, the interaction between IFRS 18's MPM disclosure requirements and existing non-GAAP regimes adds another layer. ESMA's Alternative Performance Measures (APM) Guidelines already require reconciliation and labelling for non-GAAP measures used in public communications. IFRS 18's MPM framework is broadly consistent with those guidelines but is not identical, and the two regimes must be managed in parallel. For a full treatment of Form 20-F requirements, see Finrep's Form 20-F filing guide for foreign private issuers.

Practical Resources

Several primary-source tools are worth bookmarking:

• IASB IFRS 18 implementation page: updated regularly with webcasts and supporting materials.
• PwC Illustrative Financial Statements (Reinvented Plc): a fully interactive set of IFRS 18-compliant consolidated financial statements with early adoption, linked to PwC's Manual of Accounting.
• KPMG IFRS 18 Complexity Scorecard: a free online tool that provides a personalised assessment of your organisation's specific implementation challenges.

For the detailed requirements underlying this guide, including the five income statement categories, MPM tax effect calculations, and sector-specific exceptions for financial institutions, see Finrep's IFRS 18 presentation and disclosure requirements guide.

FAQ

Does IFRS 18 change how we measure profit? No. IFRS 18 does not affect measurement: the overall profit or loss figure is unchanged. It affects only how you present and disclose financial performance. This is an important point for investor relations teams managing analyst expectations during the transition.

Do we need to restate 2025 figures for our 2027 annual report? You need one year of restated comparatives: 2026 figures in IFRS 18 format. That is why the 2026 parallel run is non-negotiable. Companies that adopted early in 2025 avoided restating comparatives entirely, which was one of the two main drivers for early adoption cited by KPMG's December 2025 preparer panel.

When should we bring our auditors into the IFRS 18 project? Now, if you have not already. Auditors need to be involved in MPM identification before the parallel run begins, not at year-end sign-off. Pre-clearance conversations on which measures qualify as MPMs and how the reconciliation methodology works will save significant time and reduce audit-time risk.

Can we use manual workarounds for classification and disaggregation? For a one-off annual report, possibly. For any company with quarterly or semiannual reporting obligations, no. KPMG's preparer panel was explicit: manual adjustments are not sustainable at scale and create control weaknesses. A strong IT plan is not optional.

Has IFRS 18 been endorsed for use in the EU? Yes. EFRAG assessed IFRS 18 as meeting all EU endorsement criteria and found no adverse effects on the European economy. EU-listed companies should also monitor ESMA guidance on transition disclosures in 2026 interim reports.

What is the single biggest mistake preparers are making right now? Applying materiality too early. Preparer panels consistently confirm that companies which scope down the project based on materiality judgments made before the full impact is understood end up rebuilding their approach mid-project. Do the full assessment first, then apply materiality at the end.