Preparing for IFRS 18: What Finance Teams Need to Review Before Adoption

What changes, and what should not be assumed?

The standard replaces IAS 1, carrying some requirements forward and moving others to related standards; it is not a wholesale rewrite of recognition and measurement for every item. So do not start the project assuming every accounting balance will be recalculated. First identify the effect on presentation and disclosure for your entity, then review the related amendments that apply to it in the official texts. ^{[1, 2]}

The main changes include defined subtotals, requirements for management-defined performance measures, and improvements in how information is aggregated and disaggregated. The gap may be small for one entity and significant for another, depending on current practice and the nature of the business. The name of the standard alone does not tell you the cost of adoption; an analysis of line items, systems and the information the new statements and notes require does. ^[2]

How do you start reviewing the statement of profit or loss?

Gather the current statement, the chart of accounts and the classification policies, then map each line item to the appropriate treatment under the standard. The classification structure includes operating, investing and financing categories, alongside income tax and discontinued operations. Do not copy these labels from the statement of cash flows on the assumption that the rules are the same; each statement has its own requirements and purposes, so refer to the applicable text. ^{[1, 2]}

Entities with specified main business activities, such as investing in assets or providing financing to customers, need particular care in applying the classification. Do not generalise from a manufacturing company to a financial institution without analysis. One practical suggestion is a decision log showing the line item, its previous and new classification, the reason, the reference and who reviewed it, so treatment does not differ between branches or subsidiaries without justification.

What are management-defined performance measures?

Not every internal dashboard or financial ratio is a measure of this kind. The standard sets conditions: the measure is a subtotal of income and expenses, it is used in public communications outside the financial statements, it communicates management’s view of an aspect of the entity’s performance as a whole, and it is not one of the subtotals specified or required by the standards. The definition must be applied to the facts, not just to the name. ^[3]

Start by listing the measures in materials aimed at external users, then examine each one with the reporting and investor relations teams. “Adjusted profit” may be used in different ways from one presentation to another, so the entity needs to standardise the definition and the data. This is a joint task; an accountant cannot review what they do not know management publishes outside the financial reporting process.

What should be documented for these measures?

The related disclosures need a clear explanation of the measure, how it is calculated and how it relates to the subtotals specified in the standards, with reconciliation requirements and related details as applicable. An asterisk under a number saying it is “non-GAAP” is not enough. The aim is for users of the statements to understand what management added or excluded and how that relates to the financial information. ^{[2, 3]}

Prepare a file for each measure covering its definition, data source, who calculates and reviews it, and changes between periods. If the calculation changes, the effects should show in the applicable review and disclosure procedures. This is a suggested working structure, not a substitute for reading the detailed paragraphs of the standard. Meeting the disclosure requirements does not by itself make a measure good; whether its presentation is appropriate and clear still matters to management and auditors.

Why does the project need IT and corporate communications?

The data needed for disaggregation may exist in the system but be hard to extract, or be spread across one account that combines expenses of different natures. Check the ability to prepare reports, review them and trace them back to source. Do not wait until period end to discover that the new template needs information that was never collected or classified from the start.

Also review management reports, budgets and external materials that use figures with similar names. Not every internal report has to match the published statements, but the differences must be understood and explained. The change is tested together with IT, planning, investor relations and audit, so that subtotals with the same name but different meanings do not reach users without explanation.

How do you prepare for comparatives and transition?

The work is not limited to the first year of adoption; the entity needs to review the transition requirements, comparative information and related disclosures under the standard. So build a baseline from prior periods and test converting the presentation and tracing the differences. Review the full text and the transitional requirements that apply to your entity, and do not rely on a marketing summary that only mentions the effective date. ^{[1, 4]}

An early dry run can be carried out using available data, documenting the gaps rather than manually adjusting the final file with no audit trail. Compare the statements before and after conversion, and explain what changed in presentation and what did not change in the totals. This suggested test helps management estimate the remaining work and assign responsibilities, and stops a change in classification being confused with an economic improvement or decline that did not happen.

What does a hypothetical Gulf case look like?

A hypothetical services group uses an adjusted profit measure in its external presentations, while its subsidiaries calculate it in different ways. The readiness team starts by identifying the uses and definitions, then decides the appropriate treatment and disclosure after specialist review. In parallel, it examines the classification and aggregation of items in the statement of profit or loss. The case does not conclude that the measure is acceptable or unacceptable without applying the standard’s conditions to its details.

In the Gulf, review the requirements of the regulator, the exchange and the sector, and the accounting framework the entity actually applies. Do not assume that every government body or small entity uses full IFRS. Nor is the effective date tied to when the statements are published; the reference point is the start of the applicable annual period. This matters for entities whose financial year does not follow the calendar year. ^[1]

How should implementation responsibilities be divided?

The reporting team interprets the requirements and keeps the decision log, data owners identify information sources, IT tests extraction and controls, and management reviews the messages and measures used outside the statements. Coordinate with the auditor at the right time without handing them responsibility for preparing the statements. Documenting these roles makes the project trackable, instead of tying it to one employee gathering files at period end.

How do you report project progress to management?

Present the decisions made, the open gaps and their effect on reporting, rather than a general percentage complete. The template may be finished while the source for an important disclosure is still unavailable. A list of verifiable outputs helps: the classification log, the inventory of measures, the comparatives dry run, the system test, and an owner for each decision.

Use an example from data that can be discussed to illustrate the effect, keeping actual figures separate from hypothetical ones. If a subtotal changes because of classification, explain why so it is not read as an improvement in the business. Review definitions in reports and agreements with specialists, without assuming the standard automatically changes contract wording.

After approval, update the closing instructions, training and review, and test whether someone else can rebuild the report from the same sources. The test reveals reliance on unwritten manual adjustments. The project becomes sustainable when the team understands the logic, not just when it has a final file. When a new interpretation or official update appears, record its effect on earlier decisions and whether it requires a change in the system or the disclosures. Do not confuse a proposal under discussion with a final requirement; check the status and date of the publication before building it into an approved accounting policy, and keep the reference for each decision for later reviews.