Reporting Financial Performance under IFRS 18

Last reviewed: July 2026.

Reporting financial performance explains how income and expenses affect profit, other comprehensive income and equity. IFRS 18 changes the structure of the statement of profit or loss for annual periods beginning on or after 1 January 2027, with earlier application permitted.

The objective is not only to calculate profit, but to present performance in a comparable, disaggregated and understandable way.

Primary performance statements

Statement	Purpose	Main content
Statement of profit or loss	Reports income and expenses included in profit	Operating, investing, financing, tax and discontinued-operation information
Other comprehensive income	Reports specified income and expenses outside profit	Items that may or may not later be reclassified
Statement of changes in equity	Connects total comprehensive income and owner transactions	Profit, OCI, dividends, share issues and reserves
Notes	Explain material line items and measures	Disaggregation, policies, judgements and performance measures

IFRS 18 effective date

IFRS 18 replaces IAS 1 for annual reporting periods beginning on or after 1 January 2027. Comparative information must be prepared, so system and mapping work is needed before the effective date.

New profit-or-loss categories

IFRS 18 classifies income and expenses into operating, investing, financing, income tax and discontinued operations, subject to requirements for entities with specified main business activities.

Classification is based on the nature of the activity and the Standard's detailed rules, not management preference.

Required subtotals

IFRS 18 introduces defined subtotals, including operating profit and profit before financing and income taxes. These improve comparability between entities that previously used different versions of “operating profit.”

Operating category

The operating category is the default category for income and expenses not classified elsewhere. It includes results from the entity's main business activities, with special rules for entities that invest in assets or provide financing as a main activity.

Investing category

The investing category includes returns from specified investments that generate returns individually and largely independently of other resources, subject to the detailed IFRS 18 requirements.

Financing category

The financing category presents specified income and expenses from liabilities arising from transactions that involve only the raising of finance, plus specified interest effects on other liabilities.

Profit versus total comprehensive income

Profit remains a central performance measure. Total comprehensive income adds OCI items. Standards determine which items enter OCI and whether they are later reclassified to profit or loss.

Management cannot move an unfavourable expense to OCI simply to protect profit.

Management-defined performance measures

IFRS 18 requires disclosures for specified management-defined performance measures used in public communications. The entity must explain the measure, reconcile it to the most directly comparable IFRS subtotal, and disclose tax and non-controlling-interest effects.

Controls should cover definitions, consistency, calculation and approval.

Aggregation and disaggregation

Material information should not be obscured by excessive aggregation or immaterial detail. Items are grouped according to shared characteristics, while dissimilar material items are presented or disclosed separately.

Operating expenses by nature or function

An entity presents operating expenses in the way that provides the most useful structured summary. Additional nature information may be required when the function method is used.

Systems should retain enough detail to support both presentation and note disclosures.

Worked performance example

A company reports revenue of 2,000,000 CU, cost of sales of 1,200,000 CU, operating expenses of 500,000 CU, investing income of 40,000 CU and financing expenses of 90,000 CU.

• Operating profit: 300,000 CU
• Profit before financing and income taxes: 340,000 CU
• Profit before tax: 250,000 CU

The example shows why operating profit and profit before financing and income taxes are different when investing income exists.

Financial performance and cash flow

Profit is accrual-based, while cash flow reports cash movement. Strong profit with weak operating cash flow may reflect receivable growth, inventory investment, non-cash income or aggressive estimates.

Review the cash-flow statement linkage guide.

Performance ratios after IFRS 18

Return on capital employed and interest cover commonly use profit before financing and income taxes. Operating profit should not be substituted when investing income makes the two subtotals different.

Use the financial ratio analysis guide.

One-off and unusual items

An item is not excluded from IFRS profit merely because it is unusual. Material information should be disaggregated and explained, while management-defined measures require the specified reconciliation and disclosures.

Comparatives and transition

Entities should map accounts to IFRS 18 categories, identify management-defined measures, prepare comparative data, update policies and test disclosure processes before adoption.

The complete financial statements guide explains the full reporting package.

Controls checklist

• approve category mapping and special main-business-activity assessments;
• reconcile performance subtotals to the ledger;
• retain nature and function expense data;
• control management-defined measure calculations;
• review OCI classification and recycling;
• prepare and test comparative information;
• align public communications with note disclosures.

Common mistakes

• treating operating profit as identical to profit before financing and tax;
• using management labels instead of IFRS 18 categories;
• excluding unusual expenses from IFRS profit;
• failing to reconcile management-defined measures;
• ignoring comparative transition work;
• using profit alone without cash-flow analysis.

Key takeaway

Financial performance reporting connects profit, OCI, equity and cash-flow analysis. IFRS 18 creates a more defined profit-or-loss structure and requires disciplined disclosure of management performance measures.

Official references: IFRS 18 Presentation and Disclosure in Financial Statements, ACCA IFRS 18 guide, and Conceptual Framework.

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