Every six months, BDO USA’s IFRS Accounting Standards leaders provide updates to international standards, continuing our tradition of providing an easy way for financial management, board directors, and audit committees to stay on top of today’s hot topics and developments. The content will also include some timely reminders and examples to demonstrate what the debits and credits might look like from a practical perspective.
In March 2026, CAW Network USA partnered with BDO USA’s IFRS Accounting Standards leaders for a deep dive into one of the most significant changes to hit international financial reporting in years. If you missed the live session, the recording is now available on demand — and if you work with entities that report under IFRS, this is one you don’t want to skip.
Speakers:
- Geoff Aldridge, Principal, Tax; CAW Network USA Chicago Chapter President
- Andrew Moore, Professional Practice Group – IFRS – Director
- Oscar Ayala-Murillo, Professional Practice Group – Global Offerings Support Services – Director
Key Takeaways
IFRS 18 Will Affect Every Entity That Reports Under IFRS
Presenters Andrew Moore and Oscar Ayala-Murillo opened with a clear statement of intent: IFRS 18 will affect every entity that applies IFRS Accounting Standards, and represents the most significant change to IFRS since IFRS 16. It replaces IAS 1 Presentation of Financial Statements, absorbing much of that standard while introducing substantial new requirements — particularly around the income statement.
IFRS 18 sets out requirements for the presentation and disclosure of information in general purpose financial statements to help ensure they provide relevant information that faithfully represents an entity’s assets, liabilities, equity, income and expenses.
The Income Statement Gets a Complete Structural Overhaul
The heart of the session focused on how IFRS 18 restructures the statement of profit or loss. Under the new standard, all income and expenses must be classified into one of five defined categories: operating, investing, financing, income taxes, and discontinued operations.
Two new mandatory subtotals are introduced: operating profit and profit before financing and income taxes. This is a significant departure from the flexibility that entities currently enjoy under IAS 1, and will require careful analysis of how existing line items map to the new structure.
One practical clarification the presenters addressed: the five categories are not labelled in the statement of profit or loss, but categorisation is required in order to calculate the mandatory subtotals. They also noted that the operating category is the residual category — items are classified as operating if they do not fall into one of the other four categories.
The Investing and Financing Categories Require Careful Judgment
The session walked through several illustrative examples to show how the new categorisation rules work in practice. The investing category applies to income and expenses arising from specified assets — including investments in associates and joint ventures, cash and cash equivalents, and other assets that generate returns independently of an entity’s wider business.
A notable nuance: depreciation on property, plant and equipment falls into the operating category, while depreciation on investment property held under the cost model falls into the investing category — a distinction that will have real implications for entities holding mixed asset portfolios.
On the financing side, the key principle is whether a liability arose from a transaction that involved only the raising of finance. Liabilities such as bank loans, bonds payable, and obligations to repurchase equity instruments fall into the financing category, while payables for goods or services, lease liabilities, and contract liabilities fall into the operating category.
Management-Defined Performance Measures: A New Disclosure Regime
One of the more far-reaching aspects of IFRS 18 is its treatment of Management-Defined Performance Measures, or MPMs. These are custom subtotals — think adjusted EBITDA or adjusted operating profit — that entities use in investor communications but that are not defined by IFRS standards.
Under IFRS 18, if a measure qualifies as an MPM, it must be disclosed in a dedicated note to the financial statements. Disclosure requirements include a description of how the measure is calculated and why management believes it provides useful information, along with a reconciliation to the most directly comparable IFRS subtotal. Any change, addition or termination of MPMs must also be explained and recalculated.
The session also clarified which communications trigger MPM status: management commentary, press releases, and investor presentations count as public communications for this purpose, while oral communications, written transcripts of oral communications, and social media posts do not.
The Clock Is Already Ticking
IFRS 18 is mandatorily effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. For entities with a December 31 year-end, that means the first mandatory financial statements prepared under IFRS 18 will cover the year ending 31 December 2027 — and will require restated comparative figures for 2026. The time to start assessing the impact is now.