IFRS 18Guide

IFRS 18 Explained for the People Who Read Financial Statements

IFRS 18 applies from 1 January 2027. What changes for the reader of an income statement, what does not, and what it means for comparing companies.

The PitchFit Team

Oct 22, 20267 min read

IFRS 18 will make every company's income statement easier to read from 2027. It will not make any two companies easier to compare. If you compare results for a living, that distinction is the whole story.

IFRS 18 replaces IAS 1 for annual periods beginning on or after 1 January 2027, with 2026 comparatives restated. Almost everything written about it is for preparers. This guide is for the reader: the board member, investor, lender or analyst who has to put one company's results next to another's.

Summary

Three things change for a reader. The income statement gets three defined categories and two mandatory subtotals, so "operating profit" finally means the same thing inside one company from year to year. Adjusted measures move from the investor deck into the audited notes, reconciled line by line. And the "other" bucket shrinks. Five things do not change: presentation by nature or by function, judgments inside the operating category, fiscal year-ends, US GAAP, and the fact that one company's adjusted number is reconciled to its own accounts, not to a peer's.

Terms in this articleIn plain words

IFRS: The accounting rules used by listed companies in the EU, the UK and many other countries.
IAS 1: Today's IFRS rule for how the financial statements are laid out. IFRS 18 replaces it.
Income statement: Revenue, costs and profit for the year.
Subtotal: A line that adds up the lines above it, such as operating profit.
MPM: Management-defined performance measure: a company's own adjusted figure, such as adjusted EBITDA.
Comparatives restated: The previous year's figures redone on the new rules, so the two years line up.
US GAAP: The US accounting rules. IFRS 18 does not change them.

What is IFRS 18?

Key pointA new rulebook for how the income statement is laid out. How anything is measured stays the same.

Issued by the IASB in April 2024, IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1. It changes where items sit and what must be explained; it does not change how anything is measured or recognized. Effective date: annual periods beginning on or after 1 January 2027, early adoption permitted, comparatives restated. A December year-end company's first IFRS 18 accounts, for 2027, will also show 2026 on the new basis.

The five changes a reader will notice

Key pointFive changes, all about where a line sits and what has to be explained.

Three categories in the income statement. Income and expenses are classified as operating, investing or financing; income taxes and discontinued operations are shown separately. Operating is the residual: everything that is not investing or financing.
Two mandatory subtotals. Operating profit or loss, and profit or loss before financing and income taxes. Operating profit now has a definition under IFRS rather than a house convention.
Management-defined performance measures (MPMs) in the audited notes. Any subtotal a company uses in public communications to convey its view of performance, adjusted EBITDA or underlying operating profit, must be disclosed in one note, reconciled to the nearest IFRS subtotal, with the reason it is useful and the tax and non-controlling-interest effect of every reconciling item.
Aggregation and disaggregation rules. Items are grouped by shared characteristics; dissimilar items may not be combined; "other" is allowed only when no more descriptive label exists. Expect more lines, on the face and in the notes.
Specified main business activities. Companies whose main business is investing in assets or providing financing to customers (banks, lessors, investment entities) classify the related income and expenses in operating, because that is their business.

The income statement under IFRS 18
Section	What goes in it
Operating	Revenue and the costs of running the business
Operating profit or loss	Required subtotal
Investing	Income from investments, such as associates, for a company whose business is not investing
Profit or loss before financing and income taxes	Required subtotal
Financing	Interest on borrowings and similar costs
Income taxes and discontinued operations	Shown separately
Profit or loss for the year	What is left after all of the above

What moves: Unilever, 2024

Key pointA real 2024 income statement, sorted the IFRS 18 way.

Unilever reports under IFRS with a December year-end, so its 2027 accounts will be among the first full sets under IFRS 18, with 2026 restated. Its 2024 income statement (EUR millions, Form 20-F) shows how the pieces re-sort.

Unilever's 2024 income statement, sorted the IFRS 18 way
Category under IFRS 18	Line item, 2024	EUR m
Operating	Operating profit, as reported	9,400
Operating	Net monetary loss from hyperinflationary economies^a	(195)
Operating profit under IFRS 18 (mandatory subtotal)		9,205
Investing	Share of net profit of joint ventures and associates	255
	Finance income^b	438
	Other income from non-current investments and associates	13
Profit before financing and income taxes (mandatory subtotal)		9,911
Financing	Finance costs	(1,113)
Financing	Pensions and similar obligations (net interest)	71
Profit before taxation Unchanged		8,869

Operating: the standard classifies the IAS 29 net monetary gain or loss, when presented as a single line, in the operating category
Investing, for a company whose main business is not financing

Two consequences.

The operating subtotal itself moves: the hyperinflation loss that Unilever shows below operating profit today sits inside it under IFRS 18, so the first number on the restated 2026 income statement will be lower than the one previously published, for no operating reason.
And Unilever's management measure moves into the audited notes: in 2024 underlying operating profit was 11,179 against reported operating profit of 9,400, a gap of 1,779 made up of restructuring (850), the loss on disposal of group companies (406, including a 545 write-off of currency translation reserves), acquisition and disposal costs (387), impairments (133) and other items.

Today that reconciliation lives in the segment note and starts from 9,400. Under IFRS 18 it starts from 9,205 and becomes an MPM disclosure: each item with its tax effect, a stated reason the measure is useful, and the standard's own warning that it may not be comparable with other companies' measures. A reader comparing Unilever with a peer that treats restructuring as a recurring cost sees the difference in print for the first time.

What it does for the reader

Key pointInside one company, the statement gets easier to follow from year to year.

Within one company, three things improve:

Operating profit becomes comparable over time once the restatement is through.
Adjusted figures that lived in the investor presentation must show their workings in the audited accounts.
The "other" bucket shrinks, so the cost base is easier to read.

What does IFRS 18 not change?

Key pointBetween two companies, the old differences stay.

Between companies, five things are unchanged:

Nature or function stays a choice. Two peers can present operating expenses in incompatible ways and both comply.
Judgments inside operating stay company-specific. Whether a restructuring charge or a lease adjustment is "operating in character" is still decided one company at a time.
Fiscal year-ends are untouched. A March year-end next to a December one is still a different twelve months.
US GAAP is untouched. A peer set with American companies in it has half its members on a different rulebook.
MPMs are reconciled, not harmonized. The note shows how one company gets from IFRS to its adjusted number, not how that number relates to a peer's.

The transition year, for anyone building a comparison

Key pointIn the first year every company makes its own calls. Read them before the numbers.

In the first cycle each company restates its comparatives on its own judgment of where legacy items land. Five IFRS peers will produce five restatements, each defensible, each different, and any US GAAP peers will not move at all. Three rules for that year:

Read each transition note before the numbers.
Rebuild operating profit on one stated basis for the whole peer set; do not take each company's new subtotal as comparable.
Keep the MPM notes side by side, because that is where the judgments are written down.

Does IFRS 18 make companies comparable?

Key pointThe standard sets the categories a comparison needs. Applying them the same way to every company is still the comparer's job.

IFRS 18 is the first IFRS standard to define the categories a comparison needs, operating, investing and financing, and the first to force adjusted measures into audited, reconciled disclosure. That makes it the natural target basis for comparing companies across rulebooks. It is how PitchFit works: every statement, IFRS or US GAAP, is mapped to one IFRS-first template with IFRS 18 as the comparison profile, every reclassification carried as an explicit, versioned bridge, and every figure traced to the printed source.

The standard gives each company a cleaner statement. One basis, applied the same way to every statement, is what makes them comparable.

Frequently asked questions

When does IFRS 18 take effect?

Annual periods beginning on or after 1 January 2027, with comparatives restated. Early adoption is permitted.

Does IFRS 18 change how profit is measured?

No. Recognition and measurement are unchanged; presentation, subtotals and disclosure change.

What is a management-defined performance measure?

A subtotal of income and expenses used in public communications to convey management's view of performance, such as adjusted EBITDA. Under IFRS 18 it must be disclosed in a single note and reconciled to the nearest IFRS subtotal.

Does IFRS 18 affect US GAAP companies?

No. US GAAP has no equivalent requirement, so mixed peer sets still need a common basis.

Does IFRS 18 define operating profit?

Yes. Operating profit or loss is a required subtotal, defined as the residual after investing and financing items, with exceptions for companies whose main business is investing or financing.

Based on the published standard and the IASB's effective date. Unilever figures from Unilever PLC's Form 20-F for the year ended 31 December 2024; the IFRS 18 classification shown is a reading of the standard's requirements, not the company's own transition disclosure, which has not yet been published.

Written by

The PitchFit Team

Notes from the team building PitchFit.

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