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ESEF Reporting

IFRS 18 vs IAS 1: What Actually Changes in Your P&L

Shubhangi Sharma
October 8, 2026
7 min read

Revenue won’t change. Costs won’t change. Net profit won’t change.

But IFRS 18 will change how those figures appear in your financial statements, and that could change how investors interpret performance.

That’s because IFRS 18 changes how financial performance is presented, not how it is measured.

For EU issuers, the deadline is already approaching. IFRS 18 applies to annual periods beginning on or after 1 January 2027, and you must restate your comparatives.

For December year-end companies, 2026 is no longer a planning year. It’s the transition year.

IFRS 18 vs IAS 1 at a Glance: What It Means for You

The table below summarizes the most important differences between IAS 1 and IFRS 18 and their practical impact on reporting teams.

Area	IAS 1	IFRS 18	What it means for you
P&L structure	Your own layout	Five defined categories	Classify every line
Subtotals	Profit or loss only	Operating profit and profit before financing and income tax	Operating profit may change
Adjusted metrics	Outside the financial statements	Many become Management-defined Performance Measures (MPMs)	Reconcile and document them
Aggregation	High-level guidance	Stricter grouping and labels	Review your “Other” lines
Cash flow statement	Often starts from net profit or profit before tax	Starts from operating profit	Operating cash flow may shift

The changes extend beyond presentation. They affect how organizations classify income and expenses, calculate key subtotals, and explain performance.

What Changes in Your P&L Under IFRS 18

Five P&L Categories Become Mandatory

IAS 1 gave organizations significant flexibility in how they presented the income statement. IFRS 18 introduces a more structured approach, requiring income and expenses to be classified into five categories. Two are familiar. Three are new.

New categories

Operating: income and expenses from main business activities and the default category for anything not classified elsewhere
Investing: returns from assets that earn income on their own, such as investment property or equity investments
Financing: the cost of raising money, such as interest on bank loans

Existing categories

Income taxes: as under IAS 12
Discontinued operations: as under IFRS 5

The new category structure also introduces standardized performance measures.

Two New Required Subtotals

IFRS 18 requires two subtotals:

Operating profit: The total of income and expenses in your operating category
Profit before financing and income tax: Operating profit plus income and expenses in your investing category

Many companies already report similar figures, but not consistently.

An IASB study of 100 companies found that over 60 reported an operating profit figure, calculated in at least nine different ways. IFRS 18 sets one framework for all.

However, standardizing presentation can also change how key performance measures appear.

Why Operating Profit May Change

Your share of the profit or loss of equity-accounted associates and joint ventures always moves to the investing category. If profit from associates or joint ventures was previously included within operating results, operating profit may decrease under IFRS 18, even though the economics of the business remain unchanged.

Banks, insurers and other entities with specified main business activities face the reverse. If investing in assets or providing financing to customers is a main business activity, certain related income and expenses are classified in the operating category instead.

Expense Presentation Becomes More Structured

IFRS 18 still lets you present expenses by nature, by function, or a mix of both. If you present any expenses by function, you must also disclose specified amounts by nature in the notes: depreciation, amortisation, employee benefits, impairment losses and inventory write-downs.

Material balances should no longer be grouped under broad categories such as “Other” when a more informative description is available.

Similar items should be grouped together, while items with different characteristics should be presented separately.

While many IFRS 18 changes affect the income statement, the impact does not stop there. The standard also changes how organizations present and explain performance measures.

What Changes Outside the P&L

MPMs Move into the Audited Financial Statements

Many organizations use metrics such as Adjusted EBITDA or Underlying Profit to explain performance to investors.

Under IFRS 18, many of these measures move into the audited financial statements as Management-defined Performance Measures (MPMs).

For each MPM, you must disclose:

What aspect of performance it communicates, and why management believes it is useful how you calculate it
A reconciliation to the most directly comparable subtotal or total specified by IFRS Accounting Standards, with the tax and non-controlling interest effect of each adjustment

These disclosures now fall within the scope of your external audit, so they need the same governance and documentation as the rest of your accounts.

Is it an MPM?

Metric	MPM?
Adjusted EBITDA	Yes
Underlying operating profit	Yes
Operating profit before depreciation, amortisation, and impairment	No
Free cash flow	No
Net debt	No

A metric generally qualifies as an MPM when it:

Represents a subtotal of income and expenses
Appears in public communications outside the financial statements
Reflects management’s view of performance
Is not already specified by IFRS Accounting Standards

For EU issuers, ESMA’s APM Guidelines still apply alongside IFRS 18. Your adjusted metrics must match inside and outside the financial statements.

The impact of IFRS 18 extends beyond the income statement and performance measures. It also affects cash flow presentation.

Your Cash Flow Statement Changes Too

Under the indirect method, your reconciliation now starts from operating, rather than net profit/ profit before tax.

For most companies:

Interest and dividends received are classified in investing activities
Interest and dividends paid are classified in financing activities

The cash flows themselves do not change. Their presentation may.

Why 2026 Is the Real IFRS 18 Transition Year

For many organizations, the biggest challenge is not implementation in 2027. It is preparing restated comparatives and updating reporting processes during 2026.

IFRS 18 requires retrospective application. You must restate comparatives and reconcile them to what you reported before. Your team needs answers to questions such as:

Which line items move between categories?
Which measures become MPMs, and what must you disclose?
How will the changes affect management reporting and investor communications?

Answering these questions often requires updates to reporting processes, internal controls, disclosure workflows, and ESEF tagging approaches.

This is where reporting teams benefit from a connected reporting environment that supports presentation, disclosure, review, and tagging workflows.

How IRIS CARBON® Supports IFRS 18 Readiness

IFRS 18 introduces new presentation, disclosure, and taxonomy requirements that can be difficult to manage when reporting activities span multiple systems.

IRIS CARBON®’s AI brings reporting, ESEF tagging, review and validation into a single intelligent workflow. Key capabilities include:

AI Auto-Tagging and Standards Alignment Check apply and validate taxonomy elements consistently.

Anomaly Detection and AI Casting/Roundup catch sign, scale and calculation errors from reclassification.

Prior-Year Alignment keeps restated comparatives consistent with current-year reporting.
InDesign Integration keeps your annual report and ESEF filing aligned.

IFRS 18 does not change financial results. It changes how organizations present and explain those results.

Preparing early gives reporting teams more time to assess the impact, update processes, and communicate changes clearly to investors and stakeholders.