Why is IFRS 18 replacing IAS 1, and what actually changes for the people who prepare and read financial statements? If you are searching for a clear explanation of the new standard, start with the problem it was built to solve: comparability.
The comparability problem
Under IAS 1, an entity had wide freedom over how it laid out the statement of profit or loss. Operating profit was never defined, so each company chose its own subtotals. Associate income and interest income might be placed differently from one entity to another. Many entities also published their own performance measures in results releases, with no required link back to the IFRS figures. Investors were left to do the comparing themselves.
What IFRS 18 adds
The lesson explains the response in plain terms, one idea at a time:
- Every item of income and expense in profit or loss is sorted into a defined category, and the residual category is the one you test last.
- Certain subtotals become required, so the same line means the same thing across companies.
- Management-defined performance measures that are used publicly now come with their own disclosure in the notes.
- Recognition and measurement stay where they were, so the change is about structure and not about the result at the bottom.
The worked example
We follow a smartphone retailer through one year and lay out its statement of profit or loss two ways: a layout that IAS 1 would have permitted and the layout IFRS 18 requires. You will see which lines move, which subtotal is new and why one of the retailer’s own measures raises a question worth asking before you assume it needs a special disclosure. We hold the answers back here on purpose.
Who this lesson is for
Reporting teams, auditors, analysts and students sitting IFRS exams will all meet these rules. The lesson is an illustration, so it flags its limits, including entities whose main business is investing or lending and topics it does not cover such as transition.
Start the lesson
Open the Why IFRS 18 Exists lesson in the Amatle Institute course, try classifying the retailer’s lines before you look at the workings and then check your reasoning against the full example.
Questions about this topic
What does IFRS 18 replace?
IFRS 18 replaces IAS 1 and is the outcome of the IASB's Primary Financial Statements project.
Does IFRS 18 change how income and expenses are measured?
No. It changes how income and expenses are classified and presented in the statement of profit or loss and adds disclosure about management-defined performance measures, but recognition and measurement are not changed.
When does IFRS 18 apply?
It applies to annual reporting periods beginning on or after 1 January 2027.
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IFRS and SAM, one requirement at a time
Each week you get the Institute's new articles: one requirement of IFRS 17, IFRS 9, IFRS 15, IFRS 18 or SAM, worked on a South African case. You start with the free IFRS 18 readiness checklist, ten areas to work through before IFRS 18 takes effect, each with its paragraph reference.