IFRS 18: Is Your P&L Ready?

A Brief Guide for Entities to present and disclose their financial performance

IFRS 18- Presentation and Disclosure in Financial Statements – replaces IAS 1 – Presentation of Financial Statements – for annual reporting periods beginning on or after 1 January 2027.

The biggest practical change is not necessarily the accounting entry itself. It is the way income and expenses must be classified and presented in the statement of profit or loss. Under IFRS 18, income and expenses are classified into Five categories:

1.Operating | 2. Investing | 3. Financing | 4. Income Taxes | 5. Discontinued Operations

The standard also introduces two key mandatory subtotals:

1. Operating Profit or Loss, and

2. Profit or Loss Before Financing and Income Taxes

The accountant therefore needs to make sure that the books, chart of accounts and reporting mappings are ready to produce the new structure.

1. The P&L Structure: IAS 1 vs IFRS 18

What changed?

Total profit did not change.

What changed is where income and expenses are presented and how operating performance is measured.

2. Example: Interest Income

Assume a manufacturing company earns $150,000 interest on excess cash.

Accountant impact

Previously, the accountant may have posted all interest income into one “Other Income” or “Finance Income” account.

Under IFRS 18, the accountant needs to know:

• what generated the interest;
• whether it relates to excess cash or another activity;
• which IFRS 18 category it belongs to; and
• whether the reporting system can separate it correctly.

* For a typical non-financial entity, interest income from cash and cash equivalents, including bank deposits, is generally classified in the Investing category. Different classification requirements may apply when investing in assets or providing financing to customers is the main business activity of the entity.

3. Example: Foreign Exchange Differences

A single FX account may no longer provide enough information.

Existing accounting record

But the balance may actually relate to:

*Foreign exchange differences are generally classified in the same category as the income and expenses from the items that gave rise to them, subject to the specific IFRS 18 requirements and exceptions.

IAS 1 vs IFRS 18

Accountant impact

The accountant may need either:

Separate GL accounts, or

A reporting dimension / supporting schedule

that allows the FX result to be split correctly.

4. Mandatory Subtotals

Under IAS 1, operating profit was not defined in the same way.

Under IFRS 18, accountants must be able to produce:

These figures should not depend on manual year-end adjustments.

They should be generated from a controlled and documented reporting structure.

* Subject to specific IFRS 18 requirements applicable to certain entities that provide financing to customers as a main business activity.

5. What About OCI?

OCI remains much less affected than the P&L. Items recognized in OCI under other IFRS Standards generally continue to be presented in OCI.

Examples include:

• certain revaluation movements;
• FVOCI movements;
• cash flow hedge reserves;
• foreign currency translation differences; and
• defined benefit remeasurements.

Visual comparison

Accountant message

The major preparation effort is in the P&L, not in redesigning OCI.

The accountant must nevertheless ensure that items remain correctly separated between profit or loss and OCI.

6. How Should the Accountant Prepare the Books?

The accounting system should be capable of producing this flow:

A practical mapping should look like this:

*Subject to the specific facts and IFRS 18 requirements.

** i.e. – Based on the Lebanese chart of accounts

7. Accountant Readiness Checklist

Before IFRS 18 becomes effective, accountants should:

• review every material income and expense account;
• identify broad accounts such as “Other Income”, “Other Expense” and “FX Gain/Loss”;
• determine the economic source of each balance;
• map accounts into Operating, Investing and Financing;
• identify accounts that need to be split;
• document judgmental classifications;
• configure ERP or reporting mappings;
• test the mandatory subtotals; and
• prepare the comparative-year information using the same structure.

The Key Message

IFRS 18 is not simply a new financial statement format.

For accountants, it requires the accounting records and reporting structure to be capable of explaining what each P&L amount represents and where it belongs.

The journal entry may remain unchanged.

The reporting discipline does not.

Prepare the books now, not when the financial statements are being drafted.