IFRS 18 takes effect for annual reporting periods beginning on or after 1 January 2027, and for UAE companies with a calendar year-end, 2026 is the comparative year. That timeline matters more than the standard’s name suggests, because the real challenge is not the new line items. Rather, it is whether management’s internal performance story can withstand the discipline of IFRS reporting.
For years, companies have communicated performance through a mixture of IFRS numbers, adjusted EBITDA, underlying profit, management KPIs, and investor-presentation measures. IFRS 18 changes that relationship by introducing a more structured income statement, including two new defined subtotals – operating profit and profit before financing and income taxes. It also requires disclosure of certain management-defined performance measures used in public communications, with reconciliations and explanations.
That makes IFRS 18 more than a presentation exercise. It creates a new level of discipline around how management explains performance, and for UAE companies preparing consolidated accounts under IFRS, that discipline arrives sooner than the 2027 effective date implies.
What Is IFRS 18, and Why Was It Introduced?
IFRS 18, Presentation and Disclosure in Financial Statements, was issued by the International Accounting Standards Board (IASB) in April 2024 and replaces IAS 1. It responds to a long-standing investor complaint: that companies’ income statements are difficult to compare, and that the “adjusted” numbers used in earnings calls and investor decks often bear little resemblance to the audited figures underneath them.
Rather than rewriting every aspect of financial statement presentation, the IASB focused specifically on the statement of profit or loss. The standard requires entities to classify income and expenses into defined categories, introduce new subtotals, and disclose how any non-IFRS performance measures used publicly reconcile to the audited numbers.
For UAE entities, this sits alongside – and interacts with – other reporting obligations already in place, including UAE Corporate Tax filings that increasingly rely on IFRS-based figures and FTA scrutiny of how those figures are derived.
The Income Statement Itself Will Look Different
For many non-financial companies, income and expenses will be classified into categories including:
- Operating
- Investing
- Financing
- Income taxes
- Discontinued operations
The new structure is intended to improve comparability, particularly around operating performance. But classification is not always mechanical.
A financing business, an investment entity, or a company with particular main business activities may reach different conclusions from a conventional trading company. The volume of IFRS 18 implementation questions currently being considered by the IFRS Interpretations Committee shows why this requires judgment rather than simply relabeling existing line items.
This is where management needs to be careful. A company cannot simply instruct its finance team to “add operating profit to next year’s accounts.” It first needs to determine how the underlying income and expenses should be classified, based on the nature of its business – a step that, for UAE groups with mixed trading, investment, and financing activities across free zones and mainland entities, can take longer than expected.
Management-Defined Performance Measures May Be the Bigger Governance Issue
For many boards, the most sensitive part of IFRS 18 may not be the primary financial statements at all. It may be the measures management publishes outside them.
Companies frequently use measures such as:
- Adjusted EBITDA
- Underlying operating profit
- Recurring profit
- Normalised earnings
- EBITDA excluding exceptional items
- Adjusted operating margin
IFRS 18 introduces specific disclosure requirements for qualifying management-defined performance measures, or MPMs. If a metric meets the definition, management may need to explain how it is calculated, why it provides useful information, how it reconciles to an IFRS-defined subtotal, what income and expenses have been adjusted, and how related tax and non-controlling-interest effects are treated.
Consider a company that currently tells investors “underlying EBITDA grew 18%.” That measure may exclude restructuring costs, acquisition integration expenses, or other items management considers exceptional. Under IFRS 18, the question becomes more demanding: is this a management-defined performance measure, and if so, can the adjustments be defended with a full reconciliation?
Ongoing IFRS Interpretations Committee discussions have also examined how broadly “public communication” should be defined for this purpose – including whether confidential presentations to a small number of shareholders or potential investors could qualify. That question should get the attention of more than the financial-reporting team. It potentially touches Investor Relations, Finance, Board reporting, M&A materials, lender presentations, and other external communications.
The question is no longer just “what measure do we like to use?” It becomes “where do we use it, how consistently do we define it, and can we defend the adjustments?” IFRS 18 does not stop management from telling its own performance story – it requires that story to become more transparent and reconcilable. That is the bigger change.
2026 Is Really the Comparative Year
IFRS 18 is effective from 1 January 2027, but that can create a false sense of distance. The standard is applied retrospectively, and companies will need to provide comparative information under the new presentation requirements.
For a calendar-year company, 2026 becomes the comparative year. That means decisions made now about the chart of accounts, management reporting, ERP mapping, income-statement classifications, adjusted-performance measures, and investor communications may directly affect the numbers that need to be restated next year.
This is why waiting until the 2027 year-end to start is the wrong implementation strategy. UAE companies planning to raise financing, list on ADX or DFM, or present consolidated results to overseas parent companies during 2026 will effectively be working under IFRS 18 logic well before the formal effective date.
The Overlooked Issue - Data Architecture
A company may currently calculate “adjusted EBITDA” in Excel after the financial statements are prepared. Under IFRS 18, that may no longer be a comfortable operating model if the measure falls within the MPM requirements.
Management may need a controlled process that identifies the reported IFRS number, the adjustment, the reason for the adjustment, the tax effect, the non-controlling-interest effect, and the resulting management-defined measure. That is not just disclosure. It is data lineage.
For larger groups, particularly those with multiple UAE free zone entities feeding into a single consolidation, the challenge could sit as much with ERP configuration and consolidation systems as with technical accounting judgment.
What Should UAE Boards Be Asking Now?
Rather than commissioning a generic IFRS 18 training exercise, boards and CFOs should start with a small set of direct questions:
- Which of our currently published performance measures would qualify as management-defined performance measures under IFRS 18?
- Can each of those measures be reconciled to an IFRS-defined subtotal, including tax and non-controlling-interest effects?
- How will our chart of accounts and ERP system need to change to classify income and expenses into the new operating, investing, and financing categories?
- Who owns the 2026 comparative-year restatement, and when does that work need to start?
- Does our definition of “public communication” cover investor decks, lender presentations, and confidential shareholder materials consistently across departments?
NRD View
IFRS 18 is often described as a new presentation standard. That understates its significance.
For many companies, it will expose the relationship between three different versions of performance: what the accounting standards report, what management measures internally, and what investors are told externally. Where those three already align, implementation should be more straightforward. Where they do not, IFRS 18 may reveal that the challenge is not presentation at all – it is performance governance.
The companies best prepared for IFRS 18 will not simply redesign their income statement. They will make sure their financial statements, management reporting, and investor narrative are built from the same underlying logic. That is the conversation boards should be having in 2026.
Frequently Asked Questions
What is IFRS 18?
IFRS 18, Presentation and Disclosure in Financial Statements, is an IASB standard issued in April 2024 that replaces IAS 1. It sets new requirements for how companies structure the income statement and disclose management-defined performance measures.
When does IFRS 18 become effective?
IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027. Earlier application is permitted.
Why is 2026 important if IFRS 18 starts in 2027?
IFRS 18 must be applied retrospectively, so companies need comparative figures presented under the new requirements. For a calendar-year entity, that means 2026 is effectively the first year affected.
Does IFRS 18 apply to UAE companies?
Yes. Any UAE entity preparing financial statements under IFRS Accounting Standards – including many mainland companies, free zone entities, and groups seeking bank financing or investment – will need to apply IFRS 18 from the effective date.
What are management-defined performance measures (MPMs)?
MPMs are subtotals of income and expenses, not defined by IFRS, that management uses in public communications to describe an aspect of financial performance – for example, adjusted EBITDA or underlying operating profit. IFRS 18 requires qualifying MPMs to be disclosed in the financial statements with a reconciliation to an IFRS-defined subtotal.
Does IFRS 18 stop companies from using adjusted EBITDA or similar measures?
No. IFRS 18 does not ban non-IFRS performance measures. It requires that measures meeting the MPM definition be disclosed transparently, with a reconciliation and an explanation of the adjustments made.
What should a UAE company do first?
Start by identifying which currently published metrics could qualify as MPMs, then assess how the chart of accounts and ERP system will need to change to support the new income statement classifications and the 2026 comparative restatement.
Conclusion
IFRS 18 will change what a UAE company’s income statement looks like. It will also change how much scrutiny sits behind the performance measures management chooses to publish. Companies that begin mapping their chart of accounts, MPMs, and ERP structure in 2026 will be restating comparative figures from a position of control rather than under year-end pressure in 2027.
visit official website for more details: https://www.ifrs.org/
If your finance team has not yet assessed which of your published performance measures could qualify as management-defined performance measures under IFRS 18, or how your chart of accounts will map to the new income statement structure, NR Doshi & Partners‘ IFRS advisory team can help you plan the 2026 comparative-year transition.
Author:
Written by the NR Doshi & Partners IFRS Advisory Team. NR Doshi & Partners is an FTA-approved chartered accountancy and business advisory firm with seven offices across the UAE, advising businesses on audit, assurance, and IFRS reporting.
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