IFRS 18 significantly changes the presentation of the income statement for groups applying IFRS. Effective for annual periods beginning on or after 1 January 2027, it replaces IAS 1 and introduces a more consistent structure to improve comparability between companies.
Three categories at the heart of the new income statement
Income and expenses must be classified into three main categories: operating, investing and financing. Two additional categories cover income taxes and discontinued operations.
Operating category
This is the default category. It includes income and expenses from the entity’s main business activities and items that do not meet the criteria for other categories. It is not synonymous with recurring profit and may include unusual or volatile items.
Investing category
This mainly includes income and expenses from assets that generate returns largely independently of the company’s other resources, such as certain investments, equity-accounted investments or investment assets. The analysis nevertheless depends on the entity’s main business activity.
Financing category
This covers, in particular, income and expenses arising from liabilities generated by financing transactions. Interest on other liabilities, such as the unwinding of discounts on certain provisions, must also be analyzed under IFRS 18.
Two mandatory subtotals
IFRS 18 requires presentation of operating profit and profit before financing and income taxes. These subtotals provide a common basis for comparison where IAS 1 allowed greater flexibility.
Specific rules depending on the business activity
A bank, insurer or investment company may classify as operating certain income and expenses that an industrial company would present as investing or financing. Each group must document its main business activities and apply the rules at the appropriate level.
Consequences for consolidation and EPM
- enrich the chart of accounts or reporting properties;
- create mapping rules by nature, transaction and activity;
- adapt reporting packages, controls and reports;
- manage exceptions by entity or sector;
- prepare an audit trail from local accounts to consolidated data and published statements.
Classification cannot always be inferred from the general ledger account alone. Analytical dimensions, counterparty nature and instrument type may become essential.
The right approach
- inventory current income statement lines;
- define classification rules and special cases;
- simulate the new format on a previous close;
- identify missing data and manual adjustments;
- industrialize the rules in the consolidation tool.
IFRS 18 is not merely a presentation change. It is a data, governance and information systems project that should bring the statutory view of performance closer to management needs.