IFRS 18 insight – Reckoner Audit

What's changing

Five changes every IFRS reporter needs to understand.

A new structure

Every income and expense is classified as operating, investing, financing, income taxes or discontinued operations.

Defined subtotals

All companies present a defined operating profit, and most also present profit before financing and income taxes. Impairments and restructuring costs stay within operating profit.

Adjusted measures move into the audited accounts

Measures such as adjusted operating profit or underlying EBITDA must be explained and reconciled in an audited note, with the tax and minority interest effect of each adjustment.

Clearer grouping and labels

Operating expenses must be analysed on the face of the income statement. Large "other" balances must be explained, and function-based presentations need a note of key expenses by nature.

Cash flow changes

Operating cash flows start from operating profit, and the options for classifying interest and dividends are largely removed.

What it means in the UK

IFRS 18 is a global standard, but in the UK its effect depends on the framework a company reports under. It reaches companies in three ways: directly, for companies using UK-adopted IFRS; through FRS 101, which uses IFRS accounting with fewer disclosures; and, in a much narrower way, through the IFRS-style "adapted formats" that FRS 102 companies can choose. Most private companies, charities and academy trusts will see no change.

Framework	Five categories	Operating profit subtotal	Adjusted measures (MPM) note	Expenses-by-nature note
UK-adopted IFRS	Yes	Yes	Yes	Yes, in full
FRS 101	Yes	Yes	Exempt	Totals only
FRS 102, adapted formats	No	Yes, from 2027	No	No
FRS 102, statutory formats	No	No change	No	No
FRS 105	No	No	No	No
Charities and academy trusts	No	No	No	No

UK-adopted IFRS: full application

Listed groups' consolidated accounts, AIM companies and any company that has chosen IFRS

The UK Endorsement Board adopted IFRS 18 in December 2025, so these companies apply it in full for periods beginning on or after 1 January 2027. That means the five categories, the new subtotals, the audited note on adjusted measures, the expenses-by-nature note where costs are shown by function, and the changes to the cash flow statement, earnings per share and half-year reports.

What to do: treat it as a full transition project, starting with the restated comparative year and a review of every performance measure used with investors.

FRS 101: IFRS 18 applies, with two exemptions

Subsidiaries and parent companies of IFRS groups preparing their own individual accounts

Because FRS 101 uses IFRS accounting, IFRS 18 flows straight through. The FRC's May 2025 amendments kept the existing FRS 101 exemptions and added two new ones for all qualifying entities. Beyond those, there is no relief from IFRS 18.

What still applies

The five categories and the new operating profit subtotals
Expenses analysed on the face of the income statement
Totals of the five key expenses where costs are shown by function
A restated comparative year
A profit before tax subtotal, which FRS 101 also requires

What is exempt

The note on management-defined performance measures
The detailed split of the five key expenses across each line item
Existing exemptions continue, including the cash flow statement

FRS 101 accounts remain Companies Act accounts, so the company-law presentation rules still apply, and companies can continue to choose statutory or adapted formats statement by statement. The changes take effect when the company applies IFRS 18. A company using FRS 101 cannot also apply IFRS 19.

What to do: map the chart of accounts once, to the IFRS 18 categories, so both the group reporting pack and the FRS 101 statutory accounts come from the same data.

FRS 102: affected only if you use adapted formats

Most UK private companies, including small companies reporting under Section 1A

IFRS 18 does not apply to FRS 102. However, company law lets FRS 102 companies choose IFRS-style "adapted formats" instead of the standard Companies Act layouts. These were based on IAS 1, so in February 2026 the FRC updated them to keep them in line with IFRS 18. The changes apply for periods beginning on or after 1 January 2027, and early adoption is permitted with disclosure.

If you use adapted formats

New profit and loss lines: operating expenses, operating profit, and profit before financing and taxation
Goodwill and intangible assets shown separately on the balance sheet
Updated current and non-current definitions, which need care for loans with covenants
The same minimum lines for small companies using adapted formats under Section 1A

What does not come across

No five IFRS 18 categories
No adjusted-measures note
No expenses-by-nature note
No change at all for companies using the statutory formats

What to do: check which format your accounts use. If you adapt formats, typically to align with an IFRS parent, plan the new subtotals for 2027. If you use statutory formats, focus instead on the FRS 102 changes already effective from 1 January 2026, notably the new lease and revenue models.

FRS 105: no impact

Micro-entities are not affected. The February 2026 package made only minor amendments to FRS 105, such as removing the paragraph on inventories of service providers. No IFRS 18 requirements were introduced.

Charities and academy trusts: no impact

Charities and academies prepare a statement of financial activities under the Charities SORP and, for academies, the Academies Accounts Direction. Neither is affected by IFRS 18 or the adapted-format changes.

Watch for indirect effects

Even companies outside IFRS 18 may feel it:

Group reporting. UK subsidiaries of IFRS groups will be asked for IFRS 18-based reporting packs from 2027, whatever framework they use for their own accounts.
Lenders and investors. Covenants and investment agreements that refer to IFRS-based "operating profit" may produce different results.
Transactions. Buyers and sellers of IFRS-reporting businesses will see new subtotals and audited adjusted measures in due diligence.

Why act now

For a December year-end, the 2026 comparative year is already complete, and March, June and August year-ends are well into theirs. Covenants, bonus targets and investor KPIs based on "operating profit" may move even though performance hasn't.

31 December year-end

Comparative from 1 Jan 2026

31 March year-end

Comparative from 1 Apr 2026

30 June year-end

Comparative from 1 Jul 2026

31 August year-end

Comparative from 1 Sep 2026

Questions boards should be asking

Will our operating profit change, and how will we explain it to investors and lenders?
Which of our performance measures will need audited reconciliations?
Can our systems produce restated comparatives without manual rework?

IFRS 18: the biggest change to the income statement in 20 years