IFRS 18, Presentation and Disclosure in Financial Statements, takes effect for annual periods beginning on or after 1 January 2027. It replaces IAS 1 and brings significant changes to how the income statement is presented.
For a December year-end, 1 January 2027 sounds comfortably far off. It is not. IFRS 18 applies retrospectively, so your first IFRS 18 financial statements will include restated 2026 comparatives. The year you need to capture data for has already begun.
What changes
IFRS 18 does not change how you recognise or measure anything. Revenue, assets and liabilities stay the same. What changes is how performance is presented and explained.
Three new categories in the income statement
Income and expenses are classified into:
- Operating
- Investing
- Financing
plus separate categories for income taxes and discontinued operations. Operating is the default category, capturing everything not classified elsewhere.
Two new required subtotals
- Operating profit
- Profit before financing and income taxes
For the first time, "operating profit" becomes a defined IFRS subtotal, making comparisons between companies easier.
Management-defined performance measures (MPMs)
If you communicate measures such as "adjusted EBITDA" or "underlying profit" publicly, in investor presentations, annual reports or press releases, IFRS 18 brings them into the audited financial statements. In a single note, you must explain why each measure is useful, how it is calculated, and reconcile it to the closest IFRS subtotal, including the tax and non-controlling interest effects of each adjustment.
Aggregation and disaggregation
New principles govern when items must be shown separately. Large "other expenses" lines will attract scrutiny. Entities that present expenses by function must also disclose certain expenses by nature in the notes.
Changes to the cash flow statement
Under the amendments to IAS 7, the indirect method must start from operating profit. For most entities, the current choices on classifying interest and dividends are removed: interest and dividends received go to investing, and interest and dividends paid go to financing.
Entities with specified main business activities
Banks, insurers, investment property companies and others whose main business is investing or providing finance classify some investing and financing income and expenses in operating. If that is you, your categorisation needs particular care.
IFRS 19: a related 2027 change
IFRS 19, Subsidiaries without Public Accountability: Disclosures, is also effective from 1 January 2027. Subsidiaries without public accountability whose parent publishes IFRS consolidated financial statements can apply IFRS recognition and measurement with reduced disclosures. The IASB amended it in August 2025 to cover new standards, including IFRS 18. For UAE subsidiaries of international groups, it is worth assessing alongside IFRS 18.
The UAE Corporate Tax angle
Under Ministerial Decision No. 114 of 2023, taxable persons prepare financial statements under IFRS, and accounting income is the starting point for taxable income (Article 20 of the Corporate Tax Law). Businesses with revenue up to AED 50 million may use IFRS for SMEs, a separate standard to which IFRS 18 does not apply.
Because IFRS 18 changes presentation, not measurement, taxable income should be largely unaffected. But the plumbing will change:
- Tax computations and workpapers that reference IAS 1 line items need remapping
- Adjustments that rely on specific lines, such as net interest expenditure for the interest limitation rules, need to be traced to the new categories
- Audited financial statements are required for businesses with revenue above AED 50 million and for Qualifying Free Zone Persons (Ministerial Decision No. 84 of 2025), so, where those statements are prepared under full IFRS, auditors will be looking at IFRS 18 compliance in the statements that support your tax return
A plan for the next 15 months
Now to end of 2026
- Run an impact assessment. Classify each income and expense line into the new categories.
- Identify your MPMs. List every non-IFRS measure used in board packs, lender reporting and public communications.
- Map your chart of accounts to the new structure, and make sure 2026 data is captured at the level needed to restate comparatives.
- Talk to your auditor early about judgement areas, especially classification of foreign exchange differences, fair value gains and income from associates.
First half of 2027
- Update your ERP, reporting tools and consolidation mappings.
- Draft pro forma IFRS 18 statements for 2026 and review them with the audit committee.
- Reconcile MPMs and prepare the new note, with tax and non-controlling interest effects.
- Update debt covenant definitions and remuneration metrics that refer to "operating profit" or EBITDA.
Before year-end 2027
- Prepare interim reports on the new basis. Note that condensed interim reports during 2027 must already present the IFRS 18 subtotals, including for comparative periods, so plan the first 2027 interim alongside steps 5 to 8.
- Update Corporate Tax computation templates and transfer pricing benchmarks that reference operating margins.
IFRS 18 will not change your profit. It will change how your profit is read, and who can compare it.
Watch this space
Proposed: the IASB expects to publish an exposure draft in the fourth quarter of 2026 that would require taxes imposed by a government as a direct substitute for income taxes to be presented in the income taxes category. This is not yet a requirement. It has not proposed deferring IFRS 18's effective date.