The implementation of IFRS 18, Presentation and Disclosure in Financial Statements, is one of the most significant developments in financial reporting in recent years. Issued by the International Accounting Standards Board (IASB) in April 2024, IFRS 18 will replace IAS 1 Presentation of Financial Statements for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. In Saudi Arabia, the Saudi Organization for Chartered and Professional Accountants (SOCPA) has endorsed IFRS 18 for application in the Kingdom, with the same effective date of 1 January 2027.
Although IFRS 18 primarily changes the presentation and disclosure of financial performance rather than the recognition and measurement of most transactions, its implementation may require significant changes to financial reporting processes, accounting systems, chart of accounts, management reporting and financial statement disclosures. Organizations should therefore treat 2026 as an important preparation year rather than waiting until the first IFRS 18-compliant financial statements are due.
A key change under IFRS 18 is the introduction of defined subtotals in the statement of profit or loss, including operating profit and profit or loss before financing and income taxes. IFRS 18 also introduces defined categories for income and expenses, including operating, investing and financing categories, with specific classification requirements. The classification of income and expenses may require management to reassess existing presentation practices, particularly for entities whose main business activities include investing in assets or providing financing to customers.
Another important area is the presentation of operating expenses. IFRS 18 requires entities to determine whether presenting expenses by nature, by function, or using a combination of both provides the most useful structured summary of expenses. Where expenses are presented by function, additional disclosures about specified expenses by nature may be required. Recent IFRS Interpretations Committee discussions in 2026 have provided further clarification in this area, making it particularly important for entities to assess their existing expense classifications and the availability of supporting information in their accounting systems.
IFRS 18 also introduces specific requirements for management-defined performance measures (MPMs). Organizations should identify the alternative performance measures and other subtotals used in public communications, such as management reports, investor presentations and press releases, and determine whether they meet the definition of an MPM. Where applicable, the financial statements will need to include a dedicated note explaining each MPM, its calculation, the reason management considers it useful and a reconciliation to the most directly comparable IFRS-defined subtotal or total, together with relevant tax and non-controlling-interest effects.
An effective pre-implementation exercise should therefore begin with an impact assessment. Management should compare the entity’s current financial statements and accounting policies with IFRS 18 requirements, identify affected line items and disclosures, assess the classification of income and expenses, review existing management performance measures and determine whether the current chart of accounts and accounting systems capture the information needed for the new disclosures. This exercise should also consider the entity’s budgeting, forecasting and management reporting processes because changes in reported subtotals may affect internal KPIs, financial ratios, performance assessments and potentially contractual or financing arrangements.
Data availability is another critical consideration. IFRS 18 requires comparative information, meaning entities adopting the Standard for 2027 annual reporting will need to prepare comparative information for the preceding period in accordance with the new presentation requirements. Consequently, entities should not wait until the end of 2027 to begin collecting the necessary information. The accounting records and reporting processes used during 2026 may need to be capable of producing the information required for the 2027 comparative presentation.
Technology and reporting systems should also be assessed. Changes to the chart of accounts, reporting dimensions, consolidation systems, financial statement templates, management reporting tools and financial reporting software may be necessary. Entities using ERP systems should determine whether additional account mappings or reporting configurations are required, while organizations using spreadsheets should evaluate whether their existing models can reliably generate the required classifications, reconciliations and comparative information. The IFRS Accounting Taxonomy has also been updated to support IFRS 18 reporting, which may be relevant to entities subject to digital or electronic financial reporting requirements.
As of August 2026, implementation work should also take account of the latest IFRS developments and implementation guidance. During 2026, the IFRS Interpretations Committee has considered several IFRS 18 application matters, including the assessment of specified main business activities, classification of certain foreign exchange differences and derivatives, and the scope of expense-by-nature disclosures. In addition, the IASB issued targeted amendments to IAS 28 in June 2026 to clarify the interaction between the fair value option and IFRS 18; these amendments take effect when an entity first applies IFRS 18. Organizations should therefore ensure that their implementation assessment reflects the latest requirements and applicable interpretations rather than relying solely on early summaries of the Standard.
For businesses operating in Saudi Arabia, IFRS 18 implementation should be considered alongside applicable SOCPA requirements and the entity’s financial reporting obligations in the Kingdom. Early preparation can help management identify reporting gaps, avoid last-minute system changes, improve the quality of comparative information and ensure that financial statements are ready for the new presentation and disclosure requirements when IFRS 18 becomes mandatory. At Salem Al-Rasheed CPA Company, we can assist businesses in assessing the impact of IFRS 18, reviewing existing financial statement presentation, identifying changes required to income and expense classifications, assessing management-defined performance measures, reviewing disclosure requirements and supporting the development of an appropriate implementation plan. Starting the assessment during 2026 can give management sufficient time to address data, systems, processes and reporting issues before IFRS 18 becomes mandatory for annual reporting periods beginning on or after 1 January 2027.