IFRS 18: The clock is ticking – More expense, MPM and earnings per share disclosures

With IFRS 18 Presentation and Disclosure in Financial Statements superseding IAS 1 Presentation of Financial Statements for annual reporting periods beginning on or after 1 January 2027, the ‘clock is ticking’ for entities to assess the effects of this new standard on their financial statements.

For entities with calendar year-ends, the 31 December 2027 annual financial statements (and any interim financial statements prepared during 2027, such as 30 June 2027 half-year financial statements) will reflect the effects of IFRS 18 on the primary financial statements and related notes. Although IFRS 18 does not affect the recognition and measurement requirements of IFRS® Accounting Standards, its effects on financial statements should not be underestimated.

Previously, we looked at how IFRS 18 could change your reported operating profit. This month, we look at what the changes mean: new disclosures for expenses, management-defined performance measures (MPMs) and earnings per share.

Example 1: Aggregation and disaggregation of information in financial statements

Based on Scenario 9 in our publication.

Entity I is a multinational group that prepares financial statements comprising thousands of individual transactions.

Historically, Entity I has applied judgement under IAS 1 Presentation of Financial Statements to determine how information is aggregated and disaggregated in the primary financial statements and notes.

In practice, Entity I has aggregated certain balances and expenses, and used ‘other’ categories in the statement of profit or loss and notes (e.g., ‘other operating expenses’).

Impacts of IFRS 18

IFRS 18 introduces a comprehensive framework for aggregation and disaggregation that applies across the financial statements. Entities must group (aggregate) items based on shared characteristics and disaggregate items that have dissimilar characteristics.
Presentation under IFRS 18 may differ from Entity I’s historical approach because:

• Items previously aggregated may need to be disaggregated where they have different characteristics
• Additional disaggregation may be required in both primary financial statements and notes
• The use of ‘other’ labelling for line items is restricted and only permitted in limited circumstances.

Our article contains more information on these aspects of IFRS 18.

Points to note for Entity I’s management:

	Level of detail: Financial statements may contain more detailed information.
	Use of 'other': Categories previously labelled as 'other' may need to be broken down further.
	Systems and processes: Systems may need to capture more granular data to support disaggregation.
	Communication: Additional disclosures may be required to explain the composition of balances.

Source: BDO International Financial Reporting Bulletin 2026/03 (Scenario 9)

Example 2: Nature vs. function expense reconciliation

Based on Scenario 12 in our publication.

Entity L presents operating expenses by function (e.g., cost of sales, administrative expenses) in its statement of profit or loss.

Historically, Entity L has not disclosed additional information about the nature of these expenses beyond the minimal requirements in IAS 1, paragraph 104 (i.e. additional information on the nature of expenses, including depreciation and amortisation expense and employee benefits expense).

Impacts of IFRS 18

IFRS 18 continues to permit the presentation of expenses by function or nature. IFRS 18, however, also permits entities to present expenses on a mixed basis (i.e., presenting some expenses by function and the balance by nature). However, if any operating expenses are presented by function:

• Cost of sales is a mandatory ‘by function’ line item in the statement of profit or loss, and it must include the total inventory expense described in paragraph 38 of IAS 2 Inventories (paragraph 82(a))
• Entity L must disclose a qualitative description of the nature of expenses included in each ‘by function’ line item in the operating category (paragraph 82(b))
• Entity L must disclose the total of each of the following income and expenses that are included in the operating category:
  • Depreciation under IAS 16 Property, Plant and Equipment
  • Amortisation under IAS 38 Intangible Assets
  • Employee benefits under IAS 19 Employee Benefits and IFRS 2 Share-based Payment
  • Impairment losses and reversals under IAS 36 Impairment of Assets
  • Write-downs and reversals of write-downs of inventories under IAS 2 Inventories.
    
    When disclosing the totals for the income and expenses noted above, the amounts need not be the amounts recognised as an expense in the period. They could, instead, include amounts recognised as part of an asset’s carrying amount, such as depreciation and employee benefits capitalised into the carrying amount of inventory at the reporting date.

Our article provides more information and examples of these new disclosures.

The extent of information to be disclosed is significantly greater than that required by IAS 1 and may require Entity L to consider whether it includes operating expenses capitalised into the carrying amounts of assets (e.g., depreciation capitalised into inventories).

Other action items for management to consider include:

	Disclosure complexity: Additional disclosures may be extensive.
	Systems and processes: Systems may need to capture information by both function and nature.
	Presentation: Entities must determine how to present this information effectively.

Source: BDO International Financial Reporting Bulletin 2026/03 (Scenario 12)

Example 3: Disclosure of management-defined performance measures (MPMs)

Based on Scenario 11 in our publication.

Entity K is a listed company and has historically presented alternative performance measures (APMs), such as ‘adjusted operating profit’, in investor presentations and management commentary outside of the financial statements.

These APMs are not defined by IFRS® Accounting Standards and are subject to regulatory reconciliation requirements in certain jurisdictions. For example, in Australia, guidance on the use of non-IFRS financial information is set out in ASIC’s Regulatory Guide 230 Disclosing non-IFRS financial information, including reconciliations to amounts included in the statutory financial report.

Impacts of IFRS 18

IFRS 18 introduces the concept of MPMs and requires detailed disclosures about MPMs in a note to the financial statements.

If Entity K’s APM of ‘adjusted operating profit’ is an MPM, Entity K will have to disclose:

• A description of the performance measure
• An explanation of why the measure provides useful information
• How the MPM is calculated
• A reconciliation to the most directly comparable subtotal listed in IFRS 18, paragraph 118, or a total or subtotal specifically required by IFRS Accounting Standards.

Our article provides more discussion about the disclosure requirements for MPMs.

Entity K will need to include MPM disclosures within the financial statements, rather than solely in the directors’ report and external communications.

Entity K’s management should also consider:

	Disclosure requirements: Disclosures may be more detailed and structured.
	Audit implications: MPM disclosures will be subject to audit.
	Systems and processes: Processes may need to be updated to ensure consistent calculation and reconciliation.
	Communication: Entities may reconsider how performance measures are presented externally.

Source: BDO International Financial Reporting Bulletin 2026/03 (Scenario 11)

Example 4: Earnings per share

Based on Scenario 13 in our publication.

Entity M has historically disclosed additional earnings per share measures, such as ‘adjusted operating profit per share’, with limited constraints on how they were calculated.

Impacts of IFRS 18

IAS 33 Earnings per Share is amended to restrict additional per share measures to those based on defined subtotals in IFRS 18, or MPMs.

Where based on MPMs, the MPM disclosure requirements apply. For example, Entity M would be required to provide MPM disclosures if it uses ‘adjusted operating profit’ as the numerator in an earnings per share calculation, assuming ‘adjusted operating profit’ meets the other requirements to be an MPM.

Entity M should also consider the following:

	Disclosure requirements: Additional disclosures may be required.
	MPM linkage: Some per share measures may trigger MPM disclosures.
	Communication: Entities may reassess whether to present additional per share metrics.

Source: BDO International Financial Reporting Bulletin 2026/03 (Scenario 4)

More information

IFRB 2026/03 IFRS 18 - the clock is ticking - practical effects on financial reporting provides more examples of instances where changes to operating profit could result from IFRS 18 implementation.

Need help?

Our recent articles on IFRS 18 demonstrate the complexity of applying IFRS 18 in practice. Reach out to our team of experts for assistance with understanding the latest requirements in IFRS 18.