IFRS 18: What’s Changing, Who It Affects, and How to Prepare for the New Reporting Requirements

Table of Contents

1. What are the changes, and why are they being made?
   • 1.1 A More Structured and Comparable P&L
   • 1.2 New Required Subtotals
   • 1.3 Main business activities: The standard recognizes that not all companies operate in the same way
   • 1.4 Greater Disaggregation and Discipline in the Presentation
   • 1.5 MPMs: Management Metrics Within the Audited Scope
   • 1.6 Related Changes to IAS 7 (Cash Flow)
2. Who will be affected by IFRS 18?
3. When Does IFRS 18 Take Effect, and How Does the Transition Work?
4. How IFRS 18 Will Affect Financial Reporting
   • 4.1 Restructuring the Income Statement (P&L)
   • 4.2 Operating Profit as a Key Performance Indicator (KPI)
   • 4.3 MPM Management: More Control, More Evidence, More Reconciliation
   • 4.4 Cash Flows (IAS 7): Changes in the Basis of Presentation and Classification
   • 4.5 Group Reporting: Consolidation Packages and Tools
5. How to Prepare for the Implementation of IFRS 18
   • Step 1: Impact Assessment (2–6 weeks)
   • Step 2: Design of the IFRS 18 model (policy + data model)
   • Step 3: Changes to Systems and Reporting Packages
   • Step 4: Transition and Comparisons (Dual View)
   • Step 5: Governance of the MPMs
6. Financial and Analytical Consolidation
   • 6.1 Financial Consolidation: Avoiding Excessive Manual Processes
   • 6.2. Financial Consolidation: Avoiding Excessive Manual Processes
   • 6.3. Budgeting and Analytics: IFRS 18 as a Common Language
7. Conclusion: IFRS 18 as an Opportunity to Improve Financial Reporting
8. Frequently Asked Questions About IFRS 18

IFRS 18 ( International Financial Reporting Standards, also known as NIIF in Spanish) is the most significant update to IFRS presentation in decades. It does not change the recognition or measurement of items (that remains in IFRS 9, IFRS 15, IAS 12, etc.), but it does significantly change how revenue is structured and disclosed in the financial statements.

In practice:

• It will restructure the income statement.
• It will standardize key subtotals, including a mandatory “operating profit or loss.”
• It will incorporate many “non-GAAP” metrics into the audited financial statements —metrics that currently tend to appear only in presentations or management reports.

The standard was issued in April 2024 and replaces IAS 1. Below you will find a practical guide, designed for financial professionals, to help you understand the changes and prepare your reporting, consolidation, budgeting, and internal analytics.

1. What are the changes, and why are they being made?

1.1 A More Structured and Comparable P&L

One of the most noticeable changes is the new classification of revenue and expenses. IFRS 18 requires that the income statement (P&L) be organized into five categories:

• Operating
• Investing
• Financing
• Income Taxes
• Discontinued operations

The first three are the most relevant for analyzing business performance. The “operating” category covers the performance of the core business, while “investing” includes returns on non-operating investments, and “financing” reflects the costs or revenues arising from financing. In practice, this creates a more consistent structure across companies.

The goal is to address a problem highlighted by investors and analysts: under IAS 1, two companies with similar businesses could report very different income statements, making comparisons difficult.

IFRS 18 will make it easier to understand:

• What is “Operation” really?
• What are returns on non-operating investments?
• what relates to the cost or return on financing

1.2 New Required Subtotals

IFRS 18 requires the presentation of at least two new subtotals in the income statement:

• Operating Profit or Loss
• Profit or loss before financing and income tax
  (operating + investing)

Operating profit becomes the primary benchmark.

Many companies today report metrics such as “operating result” or “adjusted EBIT.” IFRS 18 does not prohibit alternative metrics, but it requires that they be clearly defined and reconciled.

1.3 Main business activities: The standard recognizes that not all companies operate in the same way

IFRS 18 recognizes that not all business models operate in the same way.

It establishes specific rules for entities whose primary business includes:

• investing in assets as a core business activity
• provide financing to customers

In such cases, certain items that other companies would classify as “investing” or “financing ” may be classified as “operating.”

This prevents, for example, a bank or an insurance company from appearing to have operating losses solely due to accounting classification issues.

1.4 Greater Disaggregation and Discipline in the Presentation

The standard aims to avoid “catch-all categories” in the P&L.

This means:

• provide a more detailed breakdown when the line items are materials
• Greater consistency between the lines of the financial statements and the notes

In operational terms, this means:

• more extensive account mapping work
• greater need for tagging or attributes in ERP or EPM tools
• greater control over what is presented as a line and what is presented as a note

1.5 MPMs: Management Metrics Within the Audited Scope

IFRS 18 introduces the concept of management-defined performance measures (MPMs).

These are subtotals defined by management that reflect how the business is managed.

When a company uses MPMs, it must disclose:

• definition
• which is why they are useful
• Reconciliation to the comparable IFRS subtotal
• tax and minority interest effects when applicable

Typical examples:

• Adjusted EBITDA
• normalized profit
• recurring result

Many metrics that currently appear in presentations or management reports will be included in the audited financial statements.

1.6 Related Changes to IAS 7 (Cash Flow)

The IASB also made amendments to IAS 7:

• The indirect method is now based on operating profit or loss
• The flexibility in the classification of interest and dividends is reduced

This affects consistency between:

• P&L
• cash conversion
• Group reporting

2. Who will be affected by IFRS 18?

In practice, this applies to almost all companies that report under IFRS.
However, the impact will vary.

High impact (almost certain)

• Groups with multiple lines of business or mixed business models (manufacturing + services + financing)
• Groups with significant “other income/expenses, ” restructuring, impairment, litigation, etc.
• Companies that make extensive use of APMs and non-GAAP metrics in their communications with the market
• Groups with complex consolidation, many subsidiaries, and rigid reporting packages

Special impact due to “main business activities”

• Banking
• insurance
• leasing
• consumer credit

Here, the classification into operating, investing, and financing categories can vary significantly depending on the model.

Moderate impact

Companies with simple structures, with P&L statements that are already very “clean, ” few alternative metrics, and little consolidation complexity.

Even so, almost all of them will have to review:

• P&L presentation
• disclosures
• comparisons
• cash flow (if using the indirect method)

3. When Does IFRS 18 Take Effect and How Does the Transition Work?

Effective Date

IFRS 18 will be mandatory for annual periods beginning on or after January 1, 2027, although early adoption is permitted.

Required Comparisons

The adoption of IFRS 18 is retroactive. This means that when a company reports its 2027 financial statements under IFRS 18, it must present comparative figures for 2026 restated in accordance with the new format.

Interim Reporting

Companies that report interim financial information (IAS 34) must begin preparing comparative figures earlier.

In practice, many organizations will begin implementing IFRS 18 in 2026 to properly prepare for the transition.

4. How IFRS 18 Will Affect Financial Reporting

4.1 Restructuring the Income Statement (P&L)

You will need:

• Define classification rules: operating vs. investing vs. financing
• Remap general ledger accounts / subaccounts / nature vs. function
• Align the text by lines with the notes

The “operating” category often functions as a “residual” category, with detailed rules.

Typical effect:

• Certain results that were previously classified under “Other” may need to be reclassified under “Operating”
• Certain returns on specific investments may be reported on Investing

4.2 Operating Profit as a Key Performance Indicator (KPI)

Although IFRS 18 does not change the business itself, it does modify the official framework for reporting performance.

This may affect:

• financial reporting
• guidance
• Metrics Used in Covenants
• incentive systems linked to financial KPIs

The challenge isn’t just an accounting one; it also involves financial storytelling and internal governance.

4.3 MPM Management: More Control, More Evidence, More Reconciliation

Companies must:

• Identify alternative metrics
• define which ones qualify as MPM
• Create clean and reproducible reconciliations
• justify its use to the auditor and the audit committee

4.4 Cash Flows (IAS 7): Changes in the Presentation and Classification

Two main effects:

• In the indirect method, the starting point becomes operating profit or loss
• Interest and dividends will have fewer classification options

This improves comparability, but it can also lead to changes in historical data series.

4.5 Group Reporting: Consolidation Packages and Tools

In consolidation, IFRS 18 typically involves:

• new fields or attributes per account
• Adjustment to the Group Chart of Accounts
• Redesign of Corporate P&L Reports
• Updates to disclosure management (XBRL / iXBRL) where applicable

5. How to Prepare for the Implementation of IFRS 18

This preparation should be approached as a project to transform reporting, not as a simple change to the format.

Step 1: Impact Assessment (2–6 weeks)

It is recommended that an initial assessment be conducted to identify the differences between the current situation and the requirements of IFRS 18.

Inspection Checklist:

• What P&L format is currently used (by nature or function, subtotals, “other” line items)?
• What APMs are currently being communicated (presentations, press releases, corporate website, quarterly results)?
• Are there any lines of business with high volatility (impairment, restructurings, exchange rate effects, litigation)?
• Does the ERP or the consolidation and reporting tool allow you to manage attributes by account (tagging) without complex custom development?
• Is interim financial information published?
  

Minimum deliverables for the assessment:

• List of gaps or differences in the P&L compared to IFRS 18.
• Inventory of MPMs and preliminary assessment of their potential classification as such.
• Impact map (“heat map”) by subsidiaries or business units.

Step 2: Design of the IFRS 18 model (policy + data model)

In this phase, the following are defined:

• The rules for classifying items by category (operating, investing, financing, etc.), including examples.
• The group’s subtotals and header rows.
• The structure of the notes, including the note regarding MPMs.
• The handling of cases related to “main business activities, ” when applicable.
  

It is recommended that all decisions be documented as internal IFRS policies in order to ensure consistency among subsidiaries and facilitate the audit process.

Step 3: Changes to Systems and Reporting Packages

This phase typically involves:

• Update the chart of accounts or its mapping to the consolidation.
• Incorporate IFRS 18 attributes (operating, investing, financing, etc.).
• Modify the reporting templates used by the subsidiaries.
  

In cases where it is not possible to modify the ERP system, it is recommended to ensure that the consolidation tool allows for:

• Classify accounts using additional attributes or dimensions.
• Automatically generate the income statement in accordance with IFRS 18.
• Perform the necessary reconciliations during the transition period.

Step 4: Transition and Comparisons (Dual View)

Since IFRS 18 requires restated comparative figures, the 2026 fiscal year must be presented in two formats:

• Presentation in accordance with IAS 1 (previous format).
• Presentation in accordance with IFRS 18.

This situation can be resolved by using two mappings or two chart-of-accounts hierarchies.

During the transition year, it will be necessary to prepare reconciliations between the old and new formats, ensuring traceability between the two versions.

Step 5: Governance of the MPMs

It is recommended that a governance framework be established for Management-defined Performance Measures (MPMs) that includes:

• Identify the person responsible for each metric (Finance, FP&A, Investor Relations).
• Formal definition of each indicator.
• Standardized and documented calculation.
• Procedures for managing changes to the definition, including restating comparative figures when necessary.
• Quality and consistency checks in their calculation and presentation.

6. Financial and Analytical Consolidation

6.1 Financial Consolidation: Avoiding Excessive Manual Processes

An effective approach is to structure the implementation project into different workstreams, each focused on a specific area.

Workstream A: IFRS 18 Policy and Design

• Definition of the classification rules.
• Design of the target P&L in accordance with the standard.
• Creating templates for the MPM report.
  

Workstream B: Data and Systems

• Mapping of accounts to IFRS 18 categories.
• Adjustments to the financial consolidation processes.
• Automation of reconciliations.
  

Workstream C: Closing Process

• Impact Assessment on Fast-Close Processes.
• Definition of controls, audit evidence, and audit procedures.
• Training of financial teams, both at the corporate level and at subsidiaries.
  

Workstream D: External Communication

• Analysis of how KPIs and time series change.
• Alignment with financial guidance and communication with stakeholders.
  

6.2. Financial Consolidation: Avoiding Excessive Manual Processes

To prevent the implementation from resulting in complex manual processes, it is recommended to adopt certain operational practices.

Key Recommendations:

• Tagging at the source (whenever possible): It is recommended that each account or subaccount enter the consolidation process with defined IFRS 18 attributes, such as category, nature, or function.
• Centralized classification rules: It isadvisable to establish common criteria for the entire group, thereby preventing each subsidiary from applying different interpretations when classifying categories.
• Automatic controls:
  • Category validations based on account type.
  • Warnings about the excessive use of residual lines.
  • Reconciliation checks of MPMs with the corresponding IFRS subtotal.
• Restated comparative figures: It is recommended to prepare, at least starting in 2026, a parallel presentation of the financial statements so that the transition to IFRS 18 in 2027 does not become an abrupt process.

6.3. Budgeting and Analytics: IFRS 18 as a Common Language

The adoption of IFRS 18 also has implications for financial planning and analysis processes.

Best Practices:

• Prepare the budget using the same data model that will be used for financial reporting, to ensure consistency between actual results and forecasts.
  
• Document the adjustments defined by management, including clear definitions and rules, especially when such metrics may be communicated externally and classified as MPMs.

Conclusion: IFRS 18 as an Opportunity to Improve Financial Reporting

The implementation of Enterprise Performance Management (EPM) platforms can significantly facilitate compliance with IFRS 18, as it allows for the structuring and automation of processes that are otherwise typically managed manually.

These tools allow you to:

• Classify line items into operating, investing, and financing categories
• Generate required P&L subtotals
• Maintain traceability in comparative re-expressions
• Automate MPM reconciliations

In organizations that already have an EPM platform, the adaptation is typically evolutionary, involving the expansion of the data model and adjustments to the chart of accounts mapping. Additional recommendation: Beyond simply adapting to the new regulations, these revisions to the P&L line items can be an excellent opportunity to update the management P&L metrics.

For new implementations, there is the advantage of designing an “IFRS 18-ready” model from the outset, integrating reporting categories, closing processes, and a governed catalog of MPMs.

At Nova, we have experience in the comprehensive implementation of EPM platforms and collaborate with the leading software providers in the market. Our team is available to analyze the impact of IFRS 18 on financial reporting and consolidation, assess the organization’s level of readiness, and define an appropriate implementation plan.

Frequently Asked Questions About IFRS 18