The article on IFRS 18 published here in March covered what the standard changes and why it matters. This article covers the practical question that comes next: how do you actually rebuild your P&L model in Excel to reflect the new structure?
The answer is less complicated than it might seem. IFRS 18 does not change the underlying accounting. It changes how you present and classify the results. If your model has clean account-level granularity, the work is mostly a reclassification exercise. If it does not, this is a good moment to fix that.
What the New P&L Structure Requires
IFRS 18 introduces five mandatory categories for income and expense items:
Operating covers the core business: revenue, cost of goods sold, operating expenses, depreciation and amortisation, and the results of associates and joint ventures accounted for under the equity method when those associates are integral to the business.
Investing covers income and expenses from assets that generate a return independently from the main business: interest income on cash and short-term investments, dividends from equity investments held for return rather than strategic reasons, and gains and losses on financial assets.
Financing covers the cost of raising capital: interest expense on borrowings, gains and losses on financial liabilities, and the unwinding of discounts on provisions.
Income tax is a standalone category containing current and deferred tax.
Discontinued operations is used when a component of the business has been disposed of or classified as held for sale.
IFRS 18 also introduces three mandatory subtotals that did not previously exist as required line items:
- Operating profit: the result after all operating income and expenses, before investing and financing items
- Profit before financing and income tax: operating profit plus or minus investing items
- Profit before income tax: the existing subtotal, retained
Step 1: Audit Your Chart of Accounts
Before rebuilding the P&L presentation layer, you need to know where every account currently sits and where it needs to go.
Go through your chart of accounts and assign each account one of the five IFRS 18 categories. Most accounts are straightforward. The ones that require judgment are:
Interest income: if it comes from cash deposits or short-term treasury investments, it moves to Investing. If your business is a bank or financial institution where interest income is the core business, it stays in Operating.
Bank charges and transaction fees: these stay in Operating. They are operational costs of running the business, not financing costs.
Foreign exchange gains and losses: if they arise on trade receivables and payables, they are Operating. If they arise on borrowings or intercompany loans, they are Financing.
Gains and losses on disposal of PP&E: Investing. These are returns from assets held for use in the business that are now being sold.
Once every account is categorised, document the mapping. This becomes your single source of truth for the model rebuild and for auditors when they review your IFRS 18 classification decisions.
Step 2: Add a Classification Column to Your Chart of Accounts
In your Excel model, add a column to the chart of accounts tab with the IFRS 18 category for each account: Operating, Investing, Financing, Income Tax, or Discontinued.
Add a second column for the mandatory subtotal the account feeds into: Operating Profit, Profit Before Financing and Income Tax, or Profit Before Income Tax.
This two-column structure is what allows the P&L presentation tab to use SUMIF logic to pull the correct totals into the correct sections, rather than hardcoded range references that break when accounts are added or moved.
Step 3: Rebuild the P&L Presentation Tab
The P&L presentation tab should now look like this, using SUMIF to pull from the chart of accounts by category:
Revenue
Cost of goods sold
Gross profit
Operating expenses (by nature or function)
Depreciation and amortisation
Other operating income / (expense)
OPERATING PROFIT ← mandatory subtotal
Income from associates (investing)
Interest income (investing)
Gains / (losses) on financial assets
PROFIT BEFORE FINANCING AND INCOME TAX ← mandatory subtotal
Interest expense
Financing costs
PROFIT BEFORE INCOME TAX ← existing subtotal, retained
Income tax expense
PROFIT FOR THE PERIOD
Each line above the mandatory subtotals pulls from accounts tagged with the corresponding IFRS 18 category. The subtotals are simple SUM rows. Nothing is hardcoded.
Step 4: Handle the Management Performance Measures
If your model includes non-IFRS subtotals such as EBITDA, adjusted EBIT, or underlying operating profit, IFRS 18 classifies these as Management Performance Measures (MPMs) when they are communicated externally.
MPMs require a reconciliation to the nearest IFRS mandatory subtotal in the financial statements. In your Excel model, build a reconciliation block below the main P&L that shows:
- The MPM (e.g. Adjusted EBITDA)
- Each adjustment item with its label and amount
- The IFRS subtotal it reconciles to (Operating Profit in most cases)
This reconciliation block does not need to appear in management reporting. It is a disclosure requirement for published financial statements and investor communications.
Step 5: Update the Cash Flow Statement Starting Point
IAS 7 currently allows the indirect method cash flow statement to start from “profit for the period.” IFRS 18 requires it to start from Operating Profit, the new mandatory subtotal.
In practice this means:
Start with Operating Profit (not net income)
Add back depreciation and amortisation (non-cash items within Operating)
Adjust for working capital movements
This gives you cash from operating activities
Then show separately: cash from investing activities (linked to the Investing category items)
Then show separately: cash from financing activities (linked to the Financing category items)
Then tax paid and interest paid, which IFRS 18 now requires to be classified consistently with how those items appear in the P&L
The structural change is in the starting point and in the consistency requirement for tax and interest. The rest of the indirect method cash flow logic is unchanged.
Common Mistakes to Avoid
Reclassifying by account number rather than transaction nature. IFRS 18 classification is based on the economic substance of the transaction, not on where it sits in your chart of accounts. An account numbered in the 6900 range does not automatically go to Financing. Read the description, check the nature of the transaction, then classify.
Treating the classification as permanent without review. A company that starts a treasury operation will find that interest income shifts from Investing to Operating. A company that disposes of a major asset will have Investing items in a year they do not normally appear. Review the classification at each reporting period.
Forgetting the comparative period. IFRS 18 requires retrospective application. When you publish 2027 financial statements, the 2026 comparatives will need to be restated under the new structure. Build your 2026 model with this in mind. Capture 2026 data in a way that supports the restatement.
The Timeline
IFRS 18 is effective for annual periods beginning on or after 1 January 2027. For a December year-end company, that means the first IFRS 18 financial statements cover the year ending 31 December 2027, with 2026 comparatives restated.
The work needs to start in 2026. The chart of accounts classification, the P&L model rebuild, and the cash flow starting point adjustment all need to be in place before 31 December 2026 so that 2026 data is captured correctly.
Controllers who wait until 2027 will find themselves restating a full year of data under time pressure. Controllers who build the model now will have a full year of clean data ready when the first IFRS 18 statements are due.
Alessandro Ratzenberger is a fractional CFO and business controller based in Zurich, with 15 years of operational finance experience at Dufry Group and Bomi (UPS Group). Book a free 30-minute call or browse the finance templates.
