IFRS 18 is the biggest change to the income statement in a generation: from accounting periods beginning on or after 1 January 2027, it replaces IAS 1 and rebuilds how the profit and loss account is presented — three defined categories, two new mandatory subtotals, and, most consequentially, your "adjusted EBITDA" dragged out of the investor deck and into an audited note. The UK Endorsement Board adopted it in December 2025, so for UK groups reporting under UK-adopted IFRS this is no longer an IASB story; it is a 2026 project with a comparatives problem already running.
Here is what changes, who it touches, and why the preparation year is this one.
The new income statement: three boxes, two subtotals
IFRS 18 requires income and expenses to be classified into defined categories — operating, investing and financing carry the new classification rules, alongside income taxes and discontinued operations — with two new required subtotals: operating profit, and profit before financing and income taxes. That sounds unremarkable until you recall that "operating profit" has never been a defined IFRS term — every group has drawn the line where it flattered them, which is why comparing two companies' operating margins has always carried an asterisk. Under IFRS 18 the boundaries are prescribed: results of associates, most investment returns and financing costs sit outside operating, and the operating category becomes the default residual — everything from the entity's main business activities, including the awkward items (impairments, restructuring) that "underlying profit" presentations have traditionally exiled.
Banks and insurers get modified classification rules, recognising that financing and investing are their operations. For everyone else, the practical effect is comparability: operating profit will finally mean approximately the same thing across an industry — which also means some groups' headline metrics will look different without a single pound of performance changing. Boards should see that bridge before investors do.
MPMs: your adjusted numbers, now audited
The provision with the sharpest teeth covers management-defined performance measures — adjusted subtotals of income and expenses used in public communications to convey management's view: the adjusted operating profits, underlying earnings and their kin (ratios, cash metrics and purely internal KPIs sit outside the definition). IFRS 18 requires them to be disclosed in the financial statements, in a single note, reconciled line by line to the nearest IFRS subtotal, with explanations of what each adjustment is and why — and consistency policed year to year, with changes explained.
The discipline this imposes is precisely the point. Adjusted measures that survive contact with an audit and a published reconciliation are the ones built on defensible, consistently applied adjustments; the ones that quietly redefine "exceptional" each year to smooth the story will now do so in an audited note. Finance teams should inventory every APM the group publishes, decide which will live on as MPMs, and stress-test the reconciliations now — retiring or redefining a measure is far easier in 2026 than explaining it in the first IFRS 18 accounts.
Aggregation: fewer "other" lines
The third strand tightens how items are grouped: aggregation and disaggregation must follow shared characteristics, with large unexplained "other operating expenses" lines specifically in the crosshairs. Groups whose chart of accounts feeds a handful of catch-all lines will find the notes demanding more granularity than the systems currently produce — a mapping exercise that belongs in the same 2026 project.
Who is affected — and who isn't
IFRS 18 applies to entities reporting under UK-adopted IFRS: listed groups, AIM companies using IFRS, and subsidiaries that follow group IFRS in their own accounts. It does not touch FRS 102 — the UK's private-company GAAP has its own (also substantial) change programme running to 2026, covered in our FRS 102 guide. A UK private group under FRS 102 with an IFRS-reporting parent will meet IFRS 18 only through group reporting packs — which is exactly where many finance teams will first feel it, when the 2026 consolidation templates arrive redesigned.
Why the work starts now: the comparatives trap
IFRS 18 applies fully retrospectively. First-time application in 2027 accounts means restated 2026 comparatives — so the 2026 financial year, the one currently in progress for December year-ends, needs capturing under both presentations. Groups that wait until 2027 to think about classification will be reverse-engineering a year of ledger data into new categories under audit deadline pressure. The sensible 2026 sequence: map the P&L to the three categories and agree the judgement calls (the operating/investing boundary generates real ones); decide the MPM roster and build the reconciliations; adjust systems and the consolidation pack; and run a dry-run presentation of the 2025 numbers so the board sees the new shape early. Early adoption is permitted, and a handful of groups will take it precisely to control the narrative timing.
Acumon supports IFRS reporters through the transition — classification mapping, MPM frameworks, restated comparatives and the audit interface — via our IFRS accounts and financial reporting teams, alongside consolidated accounts work for groups rebuilding their reporting packs. If your group reports under IFRS and the 2027 start date is not yet on a project plan, this is the year it needs to be.