IFRS 18: The Clock Is Ticking - Most Organisations Are Already Behind

IFRS 18: The Clock Is Ticking — Most Organisations Are Already Behind

The biggest change to income statement presentation in decades takes effect for periods beginning on or after 1 January 2027. Preparation cannot wait until the effective date.

Most finance teams have not yet opened IFRS 18. Very few have done an impact assessment. That is a problem and the changes required cut across systems, processes, disclosures and the way organisations communicate performance to boards and investors.

Background: Why Was IAS 1 Replaced?

IAS 1 has been in place largely unchanged since 1997. Over time, diversity in income statement presentation grew considerably subtotals varied, line items were labelled inconsistently, and management-defined measures such as ‘adjusted EBITDA’ and ‘headline earnings’ appeared with no standardised link back to the financial statements. IFRS 18, issued in April 2024, addresses this directly by mandating a defined income statement structure and imposing new disclosure requirements on management performance measures.

What Changes: Key Shifts

1. A Defined Income Statement Structure

IFRS 18 replaces the flexibility of IAS 1 with a mandatory structure built around five categories: operating, investing, financing, income taxes, and discontinued operations. Entities must also present required subtotals including operating profit or loss and profit or loss before financing and income taxes. Many entities will need to restructure their current income statement, and categorisation judgements must be documented and applied consistently.

2. Management Performance Measures (MPMs)

This is the most significant change for entities using non-IFRS metrics in external communications. If your entity uses measures such as adjusted EBITDA, headline earnings or underlying profit, those measures will now require formal treatment in the notes including a reconciliation to the nearest IFRS subtotal and disclosure of the tax and non-controlling interest effect of each adjustment.

3. Disaggregation of Information in the Notes

Entities must disaggregate information where aggregation obscures material differences in the nature, function or measurement of items. Blanket aggregation of dissimilar expenses under a single line will need to be reconsidered.

4. Consequential Amendments

IFRS 18 carries consequential amendments to several other standards. Each should be assessed as part of the broader IFRS 18 impact review.

What Does Not Change

IFRS 18 does not change recognition or measurement. The amounts in the financial statements remain the same, what changes is where and how they are presented and disclosed.

Effective Date and Transition

IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027, with early application permitted. Transition requires retrospective application  meaning comparative periods must be restated. For a December year-end entity, the 2026 comparative period presented in the 2027 financial statements must already comply with IFRS 18. That creates a practical deadline well before the effective date: entities need to understand the requirements before 1 January 2026, not 2027.

The Consequences of Waiting

Entities that defer their impact assessment until 2026 will face compounding problems: less time for system and process changes, comparative period disclosures prepared under pressure, and less audit review time increasing the risk of findings and restatements. The standard is not conceptually difficult. But its implementation touches income statement structure, note disclosures, external communications and systems simultaneously. That breadth is what makes early action essential.

The Bottom Line

IFRS 18 does not change the numbers. It changes the story the numbers tell and who gets to control that story. Finance teams that act early will present that story clearly. Those that do not will be explaining restatements.

How Baker Tilly Central Africa Can Help

Our Financial Management Services team works with organisations across the region to navigate the practical complexities of IFRS implementation. For IFRS 18 specifically, we provide:

• Impact assessments -mapping your current income statement against the IFRS 18 category framework and identifying reclassification requirements
• MPM inventory and disclosure drafting - identifying your management performance measures and preparing the required reconciliations and notes
• Capacity building - tailored IFRS 18 workshops for finance teams, CFOs and boards and their committees
• Implementation support - implementation of the standard including preparing comparative period disclosures and managing the retrospective application process

By Ackson Mapfundematsva CA(Z)

Regional Director — Financial Management Services, Baker Tilly Central Africa