After decades of IAS 1, the way companies present their financial statements is about to change. IFRS 18 — Presentation and Disclosure in Financial Statements — was issued by the IASB in April 2024 and replaces IAS 1 with effect from 1 January 2027. Early application is permitted. In February 2026, the European Securities and Markets Authority published a public statement urging listed companies to begin implementation now, not at year-end 2026. This article summarises what is changing and why it matters for controllers and CFOs.

What IFRS 18 Does Not Change

Before covering what is new, one clarification worth making upfront: IFRS 18 does not change how financial performance is measured. Revenue, costs, assets, and liabilities are recognised and measured exactly as before. What changes is how that performance is presented and disclosed — specifically in the income statement and in the notes.

The New Income Statement Structure

The most significant change is the introduction of three mandatory categories of income and expenses in the statement of profit or loss.

Operating covers the core business activities. This is where most income and expenses will sit for the majority of companies.

Investing covers income and expenses from assets that are not the entity’s main business. For a manufacturer, this would include returns on financial investments or income from equity-accounted associates and joint ventures.

Financing covers interest and other financing costs.

Two new mandatory subtotals now appear on the face of the income statement: operating profit or loss, and profit or loss before financing and income tax. These are required for all companies. Below those, the structure continues through profit before tax, income tax expense, profit from continuing operations, and profit or loss — broadly consistent with current practice.

The practical implication is that many items currently sitting in operating profit will need to be reclassified. The most common example involves equity-accounted investments. Income from associates and joint ventures currently appears in operating profit for many companies, but under IFRS 18 it must move to the investing category. Any company presenting associates or JVs in its operating result will need to change its presentation and communicate that change to users of its financial statements.

Specified Main Business Activities

Banks, insurance companies, investment property companies, and lessors have specific rules. Where investing in assets or providing financing to customers is a main business activity, certain income and expenses that would otherwise sit in the investing or financing category must be reclassified to operating. The assessment is made at the reporting entity level, which means conclusions at group level and at subsidiary level can differ — with implications for consolidation reporting packages and group accounting manuals.

Management-Defined Performance Measures

IFRS 18 introduces a formal concept that will affect most listed companies: the Management-defined Performance Measure, or MPM. An MPM is any subtotal of income and expenses that management uses in public communications outside the financial statements — investor presentations, press releases, annual reports, prospectuses — that is not one of the standard IFRS subtotals and that communicates management’s view of financial performance.

The most common example is Adjusted EBITDA or Adjusted EBIT. If a company publishes these in its investor presentations, they become MPMs under IFRS 18 and require disclosure in a single note covering: why the measure is useful, how it is calculated, a full reconciliation to the nearest IFRS-defined subtotal including the tax effect, and a statement that the measure reflects management’s view and may not be comparable across companies.

One specific point worth noting: IFRS 18 does not define EBITDA. It does define a subtotal called OPDAI — operating profit or loss before depreciation, amortisation and impairments. A company can label OPDAI as EBITDA only if this accurately describes the measure given how income and expenses have actually been classified. Companies that have income in the investing or financing categories, or interest income in operating, cannot simply relabel OPDAI as EBITDA.

Operating Expenses: Nature and Function

Under IAS 1, companies could present expenses either by nature (raw materials, employee costs, depreciation) or by function (cost of sales, selling expenses, administrative expenses), with the choice left to management. IFRS 18 introduces more structure. It explicitly allows a mixed presentation, where some expenses are presented by nature and others by function. When a mixed approach is used, each line item must be clearly labelled so that readers understand what is included without consulting the notes.

Companies presenting by function must also disclose in the notes the amounts of five specific nature-based expense categories across all line items in the operating category: depreciation, amortisation, employee benefits, impairment losses, and inventory write-downs.

Changes to IAS 7 Cash Flow

IFRS 18 also affects the indirect method cash flow statement. The starting point for operating cash flows shifts to operating profit under the new structure rather than profit before tax. The existing flexibility around where to classify interest paid, interest received, and dividends received in the cash flow statement is removed — specific classification requirements now apply.

The Retrospective Requirement

IFRS 18 must be applied retrospectively. This means comparative figures for 2026 will need to be restated when the 2027 financial statements are published. ESMA explicitly flags this as a reason to begin now: the 2026 data needs to be captured in a way that supports 2027 reporting. For companies using systems that currently do not distinguish income and expenses at the level of granularity IFRS 18 requires, IT system adjustments may be necessary before the end of 2026.

What This Means for Swiss Companies

IFRS 18 is mandatory for listed companies reporting under IFRS. Swiss SMEs applying Swiss GAAP FER are not directly affected. However, any Swiss company that reports to an IFRS parent, seeks external financing from lenders or investors who expect IFRS-compliant reporting, or is considering a future listing, will encounter IFRS 18 in their reporting chain.

For controllers and CFOs at Swiss companies with IFRS reporting obligations, the practical checklist for 2026 is this: review which income and expenses currently in operating profit will need to move under the new categories; identify any custom metrics published in investor communications that will become MPMs; assess whether the indirect cash flow starting point needs to change; and verify that systems can capture data at the granularity the new structure requires.

The standard does not make financial results look better or worse. It makes them more comparable across companies — which is exactly the point.

Source: ESMA Public Statement — Reshaping performance: Implementation of IFRS 18, 17 February 2026 (ESMA32-193237008-9180)

Alessandro Ratzenberger is a Fractional CFO and Business Controller based in Zurich. finance-controller.com