In a landmark development for accounts preparers and users, the UK Endorsement Board (UKEB) has formally adopted IFRS 18 Presentation and Disclosure in Financial Statements.

Replacing IAS 1 Presentation of Financial Instruments, IFRS 18 was described by Andreas Barckow, Chair of standard-setter the International Accounting Standards Board (IASB), as "the most significant change to companies’ presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago".

Background

After taking effect in 2001, IAS 1 was amended several times to answer stakeholders’ calls for improved presentation in financial reporting. Following continued calls for improvements and a wide-ranging discussion paper published as part of the IASB’s Disclosure Initiative, IFRS 18 was issued in April 2024.

Its primary aim is to improve consistency, comparability and transparency of communication in financial statements.

Key changes

As a major part of that aim, IFRS 18 overhauls the statement of profit and loss, introducing a structured format that provides a consistent and comprehensive starting point for investor analysis. It requires entities to observe the following points:

1. Introduction of three new categories and two new, defined subtotals 
Income and expenses need to be classified into three new defined categories – namely, operating, financing and investing – alongside the existing, unchanged categories of income taxes and discontinued operations. Two new subtotals – operating profit or loss and profit or loss before financing and income taxes – must now be presented, together with the unchanged total profit or loss.  

2. Disclosure of management-defined performance measures (MPMs) 
The Standard requires all information about MPMs to be disclosed in a single note to the financial statements. MPMs are subtotals of income and expenses not specified by IFRS Accounting Standards, which are used in public communications outside financial statements to convey management’s view of a specific aspect of a company’s financial performance.

To provide transparency on entity-specific performance measures, a reconciliation is required between MPMs and the most directly comparable totals or subtotals that are specified by IFRS Accounting Standards.

3. Enhanced guidance and requirements for more useful grouping of information 
To address investor feedback that information is not always appropriately grouped or presented at the right level of detail, IFRS 18 sets out new requirements on how entities should organise and group information, including the use of meaningful labels, and disaggregation requirements for presenting operating expenses.

Companies will need to consider whether information should be presented in the primary financial statements or disclosed in the notes. They must also think about the labelling of items, including disclosure of information labelled as ‘other’, as well as whether to present or disclose operating expenses by nature or by function. 

Start preparing

In a recent webcast about IFRS 18, UKEB Technical Director Seema Jamil-O’Neill explained: “In the UK, it is a legal requirement to assess each new IFRS standard, or amendment to an existing standard, against the statutory criteria before they can be adopted for use. The UKEB is the body that carries out this assessment. The assessment helps ensure that the changes are technically sound, conducive to the UK’s long-term public good, and that the standard is not contrary to the true and fair view.”

As part of assessing IFRS 18 for suitability in the UK market, UKEB engaged bilaterally with UK regulators, professional accounting bodies, industry associations, accounts users and other national and regional standard setters. It also conducted a webinar poll. On behalf of members, ICAEW participated in this outreach by submitting a response to the UKEB’s consultation on the Draft Endorsement Criteria Assessment.

The standard will take effect in the UK and other adopting jurisdictions from 1 January 2027. However, it must also be applied retrospectively, which means it is important for entities to prepare 2026 comparatives.

ICAEW Head of Corporate Reporting Strategy Sally Baker says: “The introduction of IFRS 18 will impact entities to varying degrees, depending on individual facts and circumstances and, as is so often the case, the devil is in the detail. Additionally, with companies required to prepare comparatives under the new requirements, they should carefully assess their preparedness as they enter 2026. As well as in-depth understanding of the new requirements and changes to internal processes and systems, there may be a need to engage with internal and external stakeholders on how reported information will change.”

Find out more

ICAEW members and Corporate Reporting Faculty subscribers can access a range of ICAEW resources on IFRS 18, including an introductory article from By All Accounts and webinar recording, plus a more in-depth factsheet focusing on the new requirements introduced by the standard.