IFRS 18: the face of the profit statement changes

IFRS 18 replaces IAS 1 for periods beginning on or after 1 January 2027. It is the biggest change to how a profit statement is laid out in a generation: and because comparatives are restated, the year that matters is the one before.

What actually changes

Every item of income and expense now belongs to one of five categories: operating, investing, financing, income taxes and discontinued operations. From those come two subtotals that most statements did not carry before: operating profit or loss, which is the operating category alone, and profit or loss before financing and income taxes, which is operating plus investing. Both are required, except that an entity whose main business is financing is exempt from the second.

Gross profit is not one of the required subtotals. It is expressly permitted as an additional one inside the operating category, and most entities will keep presenting it: so Elvira does, where there is a cost of sales to strike it against.

The statement of cash flows changes too. The indirect method now starts from operating profit rather than profit after tax, and the old policy choices for interest and dividends are gone: for an ordinary trading company, interest and dividends paid are financing, and interest and dividends received are investing.

Why 2026 is the year it bites

The standard applies from 2027, and comparatives are restated. A company with a calendar year end that adopts for 2027 has to present 2026 on the new basis: which means the classification has to exist on figures being posted now, not next year. That is the whole argument for having it early.

What Elvira does

• Every income and expense account carries an IFRS 18 category, set on the account itself.
• A sensible default is taken from the account type, so nothing has to be classified before it is useful: revenue, cost of sales and expenses land in operating.
• The default is never mistaken for a decision. The statement says how many accounts are still running on one nobody has reviewed, because classification belongs to the entity and not to its software.
• A Statement of Profit or Loss (IFRS 18) with the five categories, both required subtotals, and gross profit where there is a cost of sales.
• A Statement of Cash Flows (IFRS 18) starting at operating profit, with interest and dividends where the amended IAS 7 puts them.
• Your existing Profit and Loss and Statement of Cash Flows are untouched. Both sets sit side by side, and both are driven by the same ledger: so they agree on the bottom line, and on the cash.

What is not built yet

IFRS 18 also requires management-defined performance measures: subtotals used in public communications that are not defined by IFRS: to be disclosed in a single note, each reconciled to the most directly comparable IFRS subtotal, with the tax and non-controlling-interest effect of every reconciling item. Elvira does not produce that note yet. It is the next piece of work, and we would rather say so than let you find out in an audit.