Financial statements tell the story of your business and starting 1 January 2027, how you tell that story is changing. IFRS 18 is set to replace IAS 1, bringing a sharper focus on transparency, consistency, and comparability for UAE businesses reporting under IFRS Accounting Standards.
While overall profit won’t change, the new standard fundamentally reshapes how income and expenses are classified, how performance metrics are disclosed, and how financial data is structured. For finance teams and leadership, preparation starts well before the effective date: the real question isn’t just whether you are ready for 2027, but whether your current reporting processes can deliver what IFRS 18 demands.
1. Understanding IFRS 18 and Why It Matters
IFRS 18 was issued by the International Accounting Standards Board (IASB) in April 2024. It replaces IAS 1 and introduces new requirements focused primarily on the presentation and disclosure of financial performance.
The standard addresses three key areas:
- A more structured presentation of income and expenses in the statement of profit or loss.
- Additional disclosures for management-defined performance measures (MPMs).
- Improved principles for grouping, separating, and presenting financial information.
The objective is to make financial statements easier to understand and compare, giving stakeholders a clearer picture of how businesses generate their results.
For UAE businesses, this is particularly relevant where financial reporting supports banking relationships, investment decisions, group consolidation, regulatory reporting, and management oversight.
2. A More Structured Statement of Profit or Loss
One of the most significant changes under IFRS 18 is the introduction of defined categories for presenting income and expenses.
Businesses will generally classify income and expenses into five categories:
- Operating: Income and expenses arising from the entity’s main business activities and other items not classified elsewhere.
- Investing: Income and expenses from investments and assets that generate returns independently of the entity’s other resources.
- Financing: Income and expenses arising from financing arrangements.
- Income taxes: Income tax expense or income.
- Discontinued operations: Results relating to discontinued operations.
IFRS 18 also introduces two important subtotals:
Operating Profit or Loss
This represents the total income and expenses classified within the operating category.
Profit or Loss Before Financing and Income Taxes
This combines operating profit or loss with income and expenses classified within the investing category.
These subtotals provide a more consistent structure for understanding business performance.
What this means for businesses:
Companies may need to review their chart of accounts, financial statement templates, and existing account classifications to ensure that transactions are presented appropriately under the new requirements.
Classification decisions may also require additional accounting judgment, particularly for businesses with complex financing arrangements or investment activities.
3. Management-Defined Performance Measures: Greater Transparency in Reporting
Many businesses use performance indicators beyond the figures presented in their financial statements.
Examples include
- Adjusted EBITDA
- Adjusted operating profit
- Adjusted profit before tax
- Adjusted operating income
These measures can help management explain business performance, but their calculation and presentation may differ between organizations.
IFRS 18 introduces specific disclosure requirements for qualifying management-defined performance measures (MPMs).
Where a measure meets the definition of an MPM, businesses must provide relevant explanations, disclose how it is calculated, and reconcile it to the most directly comparable IFRS-defined total or subtotal.
These disclosures are presented together in a dedicated note to the financial statements.
Why this matters for UAE businesses:
Companies should review the financial performance measures they communicate through investor presentations, management commentary, and other qualifying public communications.
This is particularly relevant for businesses that regularly report adjusted earnings or other alternative performance measures to shareholders, lenders, and investors.
Greater transparency helps stakeholders understand not only the reported results but also how management interprets the company’s financial performance.
4. More Detailed Financial Information and Expense Disclosure
IFRS 18 also strengthens requirements around how financial information is grouped and presented.
Broad expense categories may not always provide sufficient detail for financial statement users.
For example, a business presenting operating expenses by function may also need to disclose specified expense information by nature in the notes.
This can include:
- Depreciation and amortization
- Employee benefits
- Impairment losses
- Inventory write-downs
The objective is to provide more useful information without unnecessarily complicating the financial statements.
What businesses should consider:
Finance teams should assess whether their accounting systems capture sufficient detail to support the required disclosures.
This may involve reviewing expense classifications, general ledger structures, reporting templates, and internal data collection procedures.
5. Implications for Accounting Systems and Cash Flow Reporting
IFRS 18 is not simply a financial statement formatting exercise. Its requirements may also affect the underlying accounting and reporting processes.
Businesses should assess whether their existing systems can generate the information required for the new presentation categories and disclosures.
The standard also introduces consequential amendments to the IAS 7 Statement of Cash Flows.
For example, the indirect method generally starts with operating profit or loss rather than the previous starting point of profit or loss. Certain classifications relating to interest and dividends are also revised.
For businesses with multiple reporting entities or complex accounting arrangements, these changes may require updates to consolidation procedures and financial reporting systems.
Practical consideration: Early system reviews can help identify information gaps before they become challenges during the first reporting cycle.
6. What UAE Businesses Should Do Before 2027
Although IFRS 18 becomes effective in 2027, businesses should not wait until the first reporting deadline to assess its impact.
A structured preparation process can help minimize reporting disruptions and improve the quality of financial information.
Here are six practical steps to consider:
1. Confirm Your Applicable Reporting Framework
Determine whether your business prepares financial statements under full IFRS Accounting Standards and whether IFRS 18 applies to your reporting obligations.
Consider any additional requirements arising from regulators, group reporting arrangements, financing agreements, or applicable UAE legislation.
2. Review Existing Financial Statements
Assess your current profit or loss presentation, expense classifications, and performance reporting practices to identify areas that may require changes.
3. Evaluate Performance Measures
Identify the adjusted financial measures used in qualifying external communications and determine whether they meet the IFRS 18 definition of management-defined performance measures.
4. Assess Accounting Systems and Data
Review your chart of accounts, reporting software, expense records, and consolidation processes to ensure they can support the required information.
5. Prepare for Comparative Reporting
IFRS 18 requires retrospective application. Businesses adopting the standard for annual reporting periods beginning on 1 January 2027 must also prepare comparative information under the new requirements.
For calendar-year businesses, this means assessing the information needed to present 2026 comparative figures alongside the 2027 financial statements.
6. Coordinate with Your Finance Team and External Auditors
Discuss significant classification decisions, reporting adjustments, disclosure requirements, and potential implementation challenges early.
Clear documentation and internal coordination can support a more efficient transition.
7. Why Early Preparation Matters
The transition to IFRS 18 presents an opportunity for businesses to review more than their financial statement presentation.
It also encourages management to examine how financial information is collected, interpreted, and communicated across the organization.
For UAE businesses, early preparation can help:
- Improve consistency in financial reporting.
- Strengthen the quality of management information.
- Identify weaknesses in accounting systems and internal processes.
- Improve transparency for investors and lenders.
- Reduce last-minute adjustments during financial reporting and audit preparation.
Ultimately, businesses that understand their reporting requirements early will be better positioned to manage the transition and maintain reliable financial reporting processes.
How MB&A CPAs Can Support Your Business
Preparing for IFRS 18 requires a clear understanding of accounting requirements, financial reporting processes, and the information your business needs to produce.
MB&A CPAs supports businesses through accounting, bookkeeping, audit and assurance, and financial advisory services.
Our team can help businesses review their financial reporting practices, assess accounting processes, and identify areas that may require attention as reporting requirements evolve.
Whether you are reviewing your financial statements or preparing your accounting processes for 2027, having the right professional guidance can help you approach the transition with greater clarity.
Book a FREE 15-minute consultation with MB&A CPAs to discuss your accounting and financial reporting needs.
This article reflects the information available on its publication date. It has not been technically re-reviewed for later changes in law or practice. For advice on your situation, contact MB&A.