IFRS 18: How the Presentation and Disclosure Standard Is Reshaping the Way Financial Statements Are Read

A company’s business results may not change simply because a new accounting standard is applied, but the way those results are presented may change in ways that affect how they are understood, compared, and analyzed.

This is precisely where the importance of IFRS 18 – Presentation and Disclosure in Financial Statements comes into focus. Issued by the International Accounting Standards Board (IASB) in April 2024, the standard reorganizes a number of important requirements relating to the presentation and disclosure of financial performance.

In Saudi Arabia, the standard has gained direct practical significance. The Saudi Organization for Chartered and Professional Accountants (SOCPA) endorsed it in December 2024, and in June 2026, the Capital Market Authority (CMA) announced that listed joint-stock companies would be permitted to adopt it early during 2026, with mandatory application beginning for financial reporting periods starting on or after January 1, 2027. Listed companies are also required to disclose an initial assessment of the expected impact of first-time application in their financial statements for periods beginning on or after April 1, 2026.

Therefore, IFRS 18 is not an update that companies can postpone considering until the time comes to prepare their first financial statements under its requirements. Rather, it represents a transition whose implications companies should begin to understand and prepare for before mandatory application takes effect.

The New Accounting Framework for Presenting Financial Performance

IFRS 18 replaces IAS 1 – Presentation of Financial Statements, but it does not represent a complete rewrite of every requirement in IAS 1. The IASB transferred some requirements to IFRS 18 with limited amendments, while other requirements were moved to IAS 8 and IFRS 7. The new changes primarily focus on the presentation of financial performance and the related disclosures.

The standard seeks to address one of the issues that has affected the comparability of financial statements: differences in the way companies present their results, particularly the subtotals used within the statement of profit or loss.

Companies sometimes presented an operating profit figure, for example, but the way it was calculated and presented was not necessarily consistent. This made comparisons between companies more complex.

IFRS 18 therefore establishes a more structured framework for presenting income and expenses and provides more consistent reference points that users of financial statements can rely on when analyzing performance.

Classification of Income and Expenses in the Statement of Profit or Loss

One of the most significant changes introduced by IFRS 18 is the organization of income and expenses into specified categories in the statement of profit or loss, including:

• Operating.
• Investing.
• Financing.

The impact is not limited to the visual ordering of items. Classification affects how subtotals are constructed and how the resulting financial performance is interpreted.

The standard also requires the presentation of specified subtotals, most notably operating profit and profit before financing and income tax. The objective is to provide more consistent reference points for users of financial statements when analyzing and comparing companies’ performance.

The importance of this change lies in the fact that a term such as “operating profit” will no longer simply represent a figure for which management determines the method of presentation based on its previous practices. Instead, it becomes a specified subtotal within the requirements of the standard, supporting greater consistency in the way performance is understood.

Aggregation and Disaggregation: When Detail Becomes Part of Financial Information Quality

IFRS 18 does not address the issue solely through subtotals. It also strengthens the principles of aggregation and disaggregation.

The fundamental idea is that financial information should not be aggregated to an extent that obscures material items for users. At the same time, financial statements should not be broken down into an excessive number of individual items that make them more complex and less understandable.

For this reason, the standard establishes principles to help an entity determine when information should be presented in the primary financial statements and when additional detail is more appropriately provided in the notes.

The intended outcome is for users of financial statements to obtain a useful and understandable picture of financial performance while still having access to the details needed to understand material items. The IFRS Foundation also links these principles to the objective of improving comparability between entities and between different reporting periods of the same entity.

Management-Defined Performance Measures: From Alternative Metrics to Structured Disclosure

One of the aspects of IFRS 18 that deserves particular attention is the introduction of specific disclosure requirements for management-defined performance measures (MPMs).

These requirements relate to subtotals of income and expenses that management uses in public communications to communicate its view of an aspect of the company’s financial performance as a whole, and which are not specified or required by IFRS Accounting Standards.

The standard does not prevent management from using performance measures it considers useful. Instead, it makes the use of such measures more transparent to users of financial statements.

Where a measure meets the definition of an MPM, specific information must be provided about it in a single dedicated note. This includes a description of what the measure communicates, why management believes it provides useful information, how it is calculated, and a reconciliation between the measure and the closest specified IFRS subtotal or total, or the subtotal or total required by IFRS Accounting Standards, together with disclosures relating to the associated tax effects and non-controlling interests, as applicable.

This is a fundamental point: the standard does not merely tell users that management uses a particular measure. It also helps them understand how that measure was derived and how it differs from the closest accounting measure.

The IFRS Foundation also explains that these measures are not necessarily comparable with measures bearing the same name or description used by other companies. This makes disclosure of how they are calculated and the context in which they are used particularly important.

Why Do These Changes Matter to Investors and Users of Financial Statements?

Financial statements are not prepared merely to record what has happened. They provide information that users can rely on to develop an understanding, perform analysis, and make economic decisions.

Therefore, standardizing certain key presentation points can reduce the time and effort required to reinterpret financial statements from one company to another.

For example, when two different companies use the term “operating profit,” having more specific requirements governing what appears as the operating profit subtotal provides a more consistent basis for comparison than relying on different internal definitions.

Similarly, structured disclosure of management-defined performance measures allows users to move beyond simply seeing an adjusted or customized figure and understand how it was constructed and how it relates to the subtotals specified under IFRS.

For this reason, the IFRS Foundation identifies improving the transparency and comparability of information as one of the key objectives of the standard, helping investors and other users of financial statements analyze performance more effectively.

The Impact of IFRS 18 on Companies’ Financial Systems and Processes

Although IFRS 18 is a presentation and disclosure standard, preparation for it should not be reduced to changing the format of financial statements at year-end.

The new presentation of information ultimately depends on the information generated by accounting systems and processes.

Companies may therefore face practical questions such as:

• Do the data available in the accounting system provide the appropriate level of detail for classifying income and expenses?
• Can the source of the items that will be included in the new subtotals be easily traced?
• Do certain accounts or cost centers need to be reclassified?
• Do the measures management uses in investor presentations, management reports, and public communications fall within the scope of MPMs?
• Can the company produce the required reconciliations and disclosures without relying extensively on manual processes?

The IFRS Foundation itself indicates that implementation costs will vary from one company to another depending on existing practices and technology systems. Companies may also need to train employees and reconsider certain performance measures and external communication mechanisms with investors and lenders.

Accordingly, effective preparation for IFRS 18 begins with understanding the gap between how information is currently generated and how it will need to be presented and disclosed after implementation.

The Impact of the Standard on Performance Measures Used by Management

The importance of IFRS 18 does not stop at published financial statements. Companies typically use a range of financial measures in management reports, presentations to investors, press releases, and other public communications.

With the implementation of IFRS 18, management will need to review these measures and determine which of them may fall within the definition of management-defined performance measures.

This is important because the standard does not consider a figure in isolation from its context. Rather, it focuses on measures that management uses publicly to communicate its view of an aspect of the company’s financial performance.

Therefore, the preparation process requires companies to identify the measures used in public communications, understand how each is calculated, and determine its relationship to the subtotals specified under IFRS, rather than treating every performance indicator as merely an internal management tool unrelated to the financial statements.

Amendments Related to the Statement of Cash Flows

The impact of IFRS 18 is not limited to the statement of profit or loss. The IASB has introduced limited amendments to the requirements of IAS 7 – Statement of Cash Flows, including requiring an entity to use operating profit or loss as the starting point when presenting cash flows from operating activities using the indirect method.

Changes have also been introduced to the classification of certain cash flows relating to interest and dividends, along with the removal of certain presentation alternatives previously available to most entities.

These amendments do not mean that IFRS 18 has completely redesigned the statement of cash flows. The changes are limited compared with those relating to the presentation of financial performance. The IASB has also confirmed that a separate project is considering the future of the statement of cash flows requirements more broadly.

Retrospective Application: What Does It Mean in Practice?

One point that companies should not overlook is that IFRS 18 will be applied retrospectively in accordance with IAS 8.

Upon first-time application, the standard requires annual financial statements to include a reconciliation for each line item in the statement of profit or loss for the preceding comparative period between the amounts restated under IFRS 18 and the amounts previously presented under IAS 1.

This means that the transition is not limited to producing the new period’s figures under the new requirements. It also requires the ability to restate comparative-period information in the required format.

In practice, this makes the quality and classification of historical data, as well as the availability of the level of detail required for restatement, important elements of the preparation process.

For interim reporting during the first year of application, the standard includes additional transition requirements relating to the presentation of subtotals, disclosures, and comparative reconciliations.

Application Requirements in Saudi Arabia

In Saudi Arabia, the CMA has taken a clear step to provide a transition period before mandatory application.

According to the CMA announcement issued on June 30, 2026, listed joint-stock companies on the Saudi financial market may adopt IFRS 18 early during 2026, subject to the requirements and conditions specified by the CMA.

Mandatory application, however, begins for financial reporting periods starting on or after January 1, 2027. The CMA has also required listed companies to disclose an initial assessment of the expected impact of the first-time application of the standard in interim or annual financial statements prepared for financial periods beginning on or after April 1, 2026.

This makes 2026 an important year for preparation rather than simply a waiting period until the beginning of 2027. The CMA decision also clarifies that companies choosing early adoption during 2026 will, in accordance with the decision, remain required to prepare their approved financial statements under IAS 1 and publish them through the designated electronic systems of the Saudi financial market, while also announcing the financial statements prepared under IFRS 18 and the impact of early adoption in accordance with the specified requirements.

How Should Companies Prepare for IFRS 18?

Effective preparation does not begin with redesigning the financial statement template. It begins with understanding the standard’s impact on the entire reporting cycle.

This starts with reviewing current financial statements against the requirements of IFRS 18, identifying the items that will be affected by the operating, investing, and financing classifications, and examining the subtotals currently being used.

The company should then identify the performance measures management uses in reports and public communications and determine which measures may fall within the scope of MPMs, while understanding the related disclosure and reconciliation requirements.

The readiness of systems and data should also be assessed, particularly where current classifications depend on manual processing or where historical information is not available at the required level of detail.

Equally important is testing the process for restating comparative information before the actual deadline for preparing financial statements under the standard.

IFRS 18 Is Not a Change in the Format of Financial Statements, but a Change in How Financial Performance Is Presented

The importance of IFRS 18 lies in the fact that it does not view financial statements simply as a collection of numbers that need to be arranged. Instead, it views them as a means of providing information that users can understand, compare, and analyze.

For this reason, the impact of the standard extends from subtotals and classifications within the statement of profit or loss to the way information is aggregated and disaggregated, the disclosure of management-defined performance measures, and certain aspects of the statement of cash flows.

In the Saudi market, preparing for this transition is no longer a matter that can be postponed. The timeline established by the CMA makes 2026 a practical period for assessment and preparation ahead of mandatory application in 2027.

Companies that treat IFRS 18 simply as an adjustment to the format of their financial statements may discover too late that the change is broader than that.

By understanding the standard as a change in how financial performance is presented, explained, and compared, management and finance teams gain an opportunity to approach it from a position of preparedness rather than responding to requirements only after they come into effect.

Sources:

• Saudi Capital Market Authority (CMA) – Decision on the early adoption of IFRS 18 and preparation and disclosure requirements.
• IFRS Foundation – IFRS 18: Presentation and Disclosure in Financial Statements.
• IFRS Foundation – IFRS 18 Key Terms.
• IFRS Foundation – Effects Analysis of IFRS 18.
• IFRS Foundation – Project Summary: IFRS 18.
• Saudi Organization for Chartered and Professional Accountants (SOCPA) – Endorsement document for IFRS Accounting Standards, including IFRS 18.