IFRS 18, Presentation and Disclosure in Financial Statements replaces IAS 1 and is mandatory for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. For Canadian publicly accountable enterprises, IFRS Accounting Standards are incorporated into Part I of the CPA Canada Handbook – Accounting, so the change applies here on the same timeline.
It does not change how revenue or expenses are measured. It changes how they are presented, and that has real consequences for systems, reporting packages and investor communication.
What changes in the statement of profit or loss
Five categories
Income and expenses must be classified into categories. As summarized by KPMG, these are operating, investing, financing, income taxes and discontinued operations. The operating category is the residual one: items that are not classified elsewhere fall into it.
Two new required subtotals
The IASB requires two defined subtotals: operating profit and profit before financing and income taxes. Today, many companies present an “operating profit” line, but definitions vary. Under IFRS 18, the subtotal follows the standard’s definition.
Expenses by nature or function
Operating expenses can still be presented by nature, by function, or a mix. Entities that present by function must disclose certain amounts by nature in the notes, such as depreciation, amortization, employee benefits, impairment losses and inventory write-downs, according to KPMG’s summary.
Management-defined performance measures
Many companies talk about “adjusted EBITDA” or “adjusted operating income” in their MD&A and investor presentations. IFRS 18 brings certain of these measures, called management-defined performance measures (MPMs), into the audited notes. The IASB describes them as subtotals of income and expenses, not specified by IFRS, that management uses in public communications to show an aspect of financial performance.
Disclosures include an explanation of why the measure is useful, how it is calculated and a reconciliation to the most comparable IFRS subtotal, presented in a single note. Because these figures will now be audited, finance teams and audit committees should review which measures they use and how consistently they calculate them.
Aggregation and disaggregation
IFRS 18 adds principles on when items should be grouped and when they should be shown separately. Expect fewer “other” lines and more explanation of what remains in them.
Cash flow statement effects
IFRS 18 also amends IAS 7. Entities using the indirect method will start from the operating profit subtotal, and the choice of classification for interest and dividends is narrowed, as KPMG outlines.
Why 2027 is closer than it looks
The standard also applies to comparative information, as PwC notes. A December year-end company adopting in 2027 will present 2026 figures on the new basis. That means data for the comparative year needs to be captured, or at least reconstructable, under the new categories now.
What to start now
- Map your chart of accounts. Assign each income and expense account to an IFRS 18 category. Flag accounts that mix categories and will need to be split.
- Check your systems. Confirm your ERP, consolidation and reporting tools can tag and report by category. Some changes are configuration; others are projects.
- Inventory your performance measures. List every non-IFRS subtotal used in press releases, MD&A and investor decks. Decide which will be MPMs and document their calculation.
- Draft pro forma statements. Restate one recent year on the new basis to see the impact and identify judgment areas early.
- Talk to your auditor and audit committee. Agree on key judgments, such as classifying items for entities with specific main business activities, before year-end pressure arrives.
- Update loan covenants and incentive plans. If they reference “operating income,” check whether the new definition changes the outcome.
How we can help: Our upcoming financial audit division supports Canadian accounting firms in preparing audit files from clients’ accounting systems, and KW Consulting helps finance teams with system and reporting changes. Visit our IFRS page, learn about our financial audit offering, or contact us.
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