IFRS 18 Management-Defined Performance Measures: 2026 Practitioner Walkthrough

If your company uses adjusted EBITDA, underlying profit, or any other income-and-expense subtotal in an earnings release or investor presentation, IFRS 18 is about to change how you account for it. From annual periods beginning on or after 1 January 2027, those measures move inside the audited financial statements. This guide walks finance teams through exactly what to do before that deadline.

Key takeaway: IFRS 18's management-defined performance measures (MPMs) framework does not ban non-GAAP measures. It brings them into the statutory audit and requires a reconciliation note in the financial statements. The operational lift is significant, and 2026 is the shadow year.

For a broader look at the full IFRS 18 income statement restructure, see our IFRS 18 presentation and disclosure requirements guide. This article focuses specifically on the MPM identification and disclosure process.

What Qualifies as an IFRS 18 Management-Defined Performance Measure?

An MPM is a subtotal of income and expenses that meets all three of the following criteria, per the IFRS 18 standard:

1. Used in public communications outside the financial statements
2. Communicates management's view of an aspect of the entity's financial performance as a whole
3. Not specified or required by IFRS Accounting Standards

All three gates must be cleared. Miss one, and the measure is not an MPM.

What is excluded

The definition is narrower than it first appears. The following are explicitly outside MPM scope:

This exclusion list matters in practice. Many companies track dozens of APMs. Only the subset that are income/expense subtotals used externally to communicate overall group performance will be caught.

The rebuttable presumption

IFRS 18 builds in a rebuttable presumption: any income/expense subtotal used in public communications is presumed to communicate management's view. As AARO Systems notes, "a company is not required to consider whether to rebut the presumption" -- the default is that the measure IS an MPM unless there is reasonable and supportable information to the contrary.

In practice, the presumption is close to irrebuttable for any measure a company puts in an earnings release or investor deck. The realistic use of the rebuttal is narrow: for example, a measure disclosed only in a segment note for a specific audience, not used to characterise overall group performance.

Step 1: Audit Every External Communications Channel

This is the step most finance teams underestimate. The trigger for MPM classification is use in "public communications outside the financial statements" -- and that scope is broader than formal investor relations materials.

Channels that count include:

• Earnings press releases
• Investor day presentations and slides
• Analyst call transcripts (where management references a subtotal)
• Annual report narrative sections (management commentary, strategic report)
• Debt covenant communications where income/expense subtotals are cited
• Sustainability reports where financial performance subtotals appear
• Potentially social media posts referencing specific income/expense figures

PwC's IFRS 18 implementation guidance is explicit: this is not just a finance team exercise. It requires coordination with investor relations, legal, communications, and senior management.

Practical action: Build a communications inventory. Assign someone to pull every external document published in the last two years that references a financial performance figure. Flag every income/expense subtotal that is not an IFRS-specified line item.

Step 2: Classify Each Measure Against the Three Criteria

Once you have the inventory, run each measure through the decision tree:

1. Is it a subtotal of income and expenses? If no, stop -- it is not an MPM (e.g., free cash flow, net debt).
2. Is it used in public communications outside the financial statements? If no, stop.
3. Is it already specified by IFRS? If yes, stop -- it is an IFRS-specified measure, not an MPM.
4. Does it communicate management's view of overall group performance? Presumed yes if used externally. Document any rebuttal rationale carefully.

Classic measures that will qualify as MPMs include adjusted operating profit, adjusted EBITDA (where EBITDA is not an IFRS-specified subtotal), underlying profit, core earnings, and adjusted profit from continuing operations. These are income/expense subtotals, are not IFRS-specified, and are routinely used in investor communications.

How the new IFRS 18 P&L structure changes the landscape

IFRS 18 introduces a mandatory "operating profit" subtotal on the face of the income statement -- an IFRS-specified measure. This shifts the baseline. Many companies currently present "operating profit" as a management-defined figure. Under IFRS 18, the IFRS-defined operating profit becomes the anchor, and any adjusted version ("adjusted operating profit," "operating profit before exceptional items") becomes an MPM requiring disclosure. The five new P&L categories -- operating, investing, financing, income taxes, and discontinued operations -- also affect which line items feed into each subtotal, which in turn affects which reconciling items appear in your MPM note.

For a detailed comparison of how IFRS 18 and ASU 2024-03 approach income statement reform differently, see IFRS 18 vs ASU 2024-03.

Step 3: Design the MPM Disclosure Note

IFRS 18 requires all MPMs to be disclosed in a single dedicated note in the financial statements. This note must contain, for each MPM:

• A statement that the MPM reflects management's view and may not be comparable to similar measures used by other entities
• An explanation of why the MPM is reported (what aspect of performance it communicates and why it is useful)
• An explanation of how the MPM is calculated
• A reconciliation to the most directly comparable IFRS-specified subtotal
• The income tax effect and effect on non-controlling interests for each reconciling item
• An explanation of how the income tax effect was calculated

The reconciliation format matters. KPMG's IFRS 18 technical guidance notes that the "most directly comparable" IFRS subtotal is a judgement call that preparers need to document carefully. For adjusted operating profit, the anchor is IFRS 18's operating profit. For adjusted profit, it is profit before income taxes or profit for the period.

Illustrative reconciliation format

The IFRS Foundation's educational materials show the following structure for an adjusted operating profit MPM:

The note must also include the narrative explanation of why each adjusting item is excluded and how the tax effect is computed (e.g., by applying statutory rates or pro-rata allocation).

Step 4: Engage Auditors Early -- MPMs Are Now in Scope

This is the change that catches most teams off guard. Under current practice, APMs and non-GAAP measures sit outside the audited financial statements. They may receive limited assurance or none at all. Under IFRS 18, MPMs are disclosed in the notes to the financial statements, which means they fall within the scope of the statutory audit.

Auditors will need to:

• Verify that the MPM reconciliation is arithmetically accurate and consistent with the primary statements
• Assess whether the description of why and how the MPM is calculated is consistent with the entity's actual practice
• Consider whether the selection of the "most directly comparable" IFRS subtotal is appropriate
• Review whether the tax effect calculation methodology is reasonable

What this means operationally: Your audit timeline extends. MPM disclosures need to be prepared, reviewed, and signed off as part of the financial statements preparation process -- not as a post-close IR exercise. Build MPM preparation into your close calendar, not your investor relations calendar.

As BDO's IFRS 18 analysis notes, for the first time, measures used in earnings releases and investor presentations will need auditor involvement as part of the financial statements preparation process.

Step 5: Handle Changes, Additions, and Discontinuations

If you change the calculation of an MPM, introduce a new MPM, or stop using one, IFRS 18 requires you to disclose:

• An explanation of the change and its effects
• The reasons for the change
• Restated comparative information, unless impracticable

The restatement requirement is the operational sting. If you redefine adjusted EBITDA in your 2027 financial statements, you must restate the 2026 comparative figure on the same basis. That means your MPM definitions need to be locked down and consistent before the comparative period begins -- which, for a December year-end entity, is 1 January 2026.

Key takeaway: For a December year-end entity, the first IFRS 18 annual report covers the year ending 31 December 2027, with 2026 comparative information restated under IFRS 18. The 2026 financial year is effectively the shadow year. MPM definitions and reconciliations need to be in place now.

Step 6: Address the Dual-Regime Challenge

For companies subject to multiple regulatory regimes, MPM compliance is not a single exercise.

EU-listed companies must comply with both IFRS 18's MPM framework and ESMA's Guidelines on Alternative Performance Measures (issued 2015, updated 2016). The regimes overlap but are not identical. ESMA's guidelines cover a broader range of measures -- including non-income/expense subtotals like free cash flow -- while IFRS 18 MPMs are narrower. EU preparers will need to map their existing ESMA APM disclosures against the IFRS 18 MPM definition and run both compliance tracks.

US-listed companies using IFRS (primarily foreign private issuers) must also navigate SEC Regulation G and Item 10(e) of Regulation S-K, which govern non-GAAP disclosures. The SEC's non-GAAP rules have different scope, reconciliation, and prominence requirements from IFRS 18. Dual-listed companies need a compliance matrix that maps each measure against both regimes. For a deep dive on the SEC side, see our non-GAAP financial measures 2026 compliance guide.

Sector-Specific MPM Examples

The measures most likely to be caught as MPMs vary by industry. Grant Thornton's IFRS 18 implementation guide highlights that entities in sectors with established industry-specific performance measures need to assess each carefully.

Note that measures like return on equity, net debt, and free cash flow are explicitly excluded regardless of sector -- they are not subtotals of income and expenses.

Governance: Who Owns MPM Definitions?

IFRS 18 creates a new governance question that most companies have not yet answered: who approves MPM definitions, and how are they documented?

Best practice is to treat MPM definitions as accounting policies. That means:

• CFO and audit committee sign-off on the definition of each MPM and the selection of adjusting items
• Written accounting policy documentation covering how each MPM is calculated and why each adjusting item is included
• A formal review process before any MPM definition changes, given the restatement consequences
• Coordination between finance, IR, legal, and communications to ensure that no new income/expense subtotal enters external communications without going through the MPM classification process first

The audit committee's role is particularly important. MPMs are now audited disclosures. The committee should understand which measures qualify, why, and how the reconciliations are prepared.

What to Do Right Now in 2026

With the 2027 effective date approaching and 2026 as the shadow year, here is the sequenced action list:

1. Complete the communications audit -- pull all external documents from the last two years and inventory every income/expense subtotal used outside the financial statements.
2. Run the classification exercise -- apply the three-criteria test to each measure. Document the analysis, including any rebuttal rationale.
3. Lock MPM definitions -- finalise which measures will be disclosed as MPMs and document the calculation methodology. Changes after 2026 trigger restatement.
4. Design the disclosure note -- draft the single MPM note, including narrative explanations and reconciliation templates. Use the IFRS Foundation's illustrative examples as a starting point.
5. Brief auditors -- bring your audit team into the MPM process now. Agree on audit approach, evidence requirements, and timeline integration with the close calendar.
6. Map dual-regime obligations -- if subject to ESMA APM guidelines or SEC non-GAAP rules, build a compliance matrix covering both regimes.
7. Train IR and communications teams -- establish a clearance process so no new income/expense subtotal enters external communications without finance and legal review.
8. Consider early adoption -- IFRS 18 permits early adoption from April 2024. Early adopters gain a full reporting cycle to work through MPM disclosures before they are mandatory. Companies with complex APM landscapes or dual listings may benefit from the extra runway.

For the full phased implementation roadmap covering the P&L restructure alongside MPMs, see our IFRS 18 implementation guide.

FAQ

Does a measure used only in an earnings press release count as an MPM? Yes. Earnings press releases are public communications outside the financial statements. If the measure is an income/expense subtotal that communicates overall group performance and is not IFRS-specified, it meets the MPM definition. The rebuttable presumption applies.

Is adjusted EBITDA always an MPM under IFRS 18? Almost always, if used externally. EBITDA is not an IFRS-specified subtotal (unlike IFRS 18's "operating profit before depreciation, amortisation and impairments within the scope of IAS 36," which is IFRS-specified). Adjusted EBITDA used in investor communications will typically meet all three MPM criteria.

What is the difference between an MPM and the new IFRS 18 operating profit subtotal? IFRS 18's operating profit is an IFRS-specified subtotal -- it appears on the face of the income statement and is not an MPM. An MPM is a management-defined adjustment to that or another IFRS subtotal. "Adjusted operating profit" (which excludes, say, restructuring costs) is an MPM; "operating profit" (as defined by IFRS 18) is not.

Do we need to restate comparative information when we adopt IFRS 18? Yes. IFRS 18 requires retrospective application. For a December year-end entity, the 2026 comparative period must be restated under IFRS 18, including MPM disclosures. This means MPM definitions and reconciliations need to be in place for the 2026 financial year.

Are MPMs subject to audit? Yes. Because MPMs are disclosed in the notes to the financial statements, they fall within the scope of the statutory audit. This is a fundamental change from the current position where APMs are typically outside audit scope.

Can we discontinue an MPM before 2027 to avoid the disclosure requirements? Yes, but with care. If a measure is not used in public communications in the period covered by the financial statements, it does not meet the MPM definition. However, if you discontinue a measure that was previously disclosed, IFRS 18 requires disclosure of the cessation and its effects in the period of discontinuation. Discontinuing measures purely to avoid compliance is also likely to attract investor and auditor scrutiny.