IFRS 18 for Investment Entities: What Changes in 2027

IFRS 18 replaces IAS 1 for annual periods beginning on or after 1 January 2027 and must be applied retrospectively. For investment entities, the main questions are whether investment returns land in operating profit and which investor KPIs must now be reconciled in the audited notes.

What is IFRS 18

IFRS 18 Presentation and Disclosure in Financial Statements is the IASB's replacement for IAS 1, issued in April 2024. It applies to every entity that prepares IFRS financial statements, and it changes how financial performance is presented and explained, not how items are recognised or measured.

The IASB focused on three investor concerns:

• Subtotals in the statement of profit or loss are not comparable across entities.

• Non GAAP measures used by management are not transparent enough.

• Aggregation and disaggregation rules were applied inconsistently, so material information was either omitted or obscured.

Much of IAS 1 is carried forward with limited wording changes. Even so, the impact is expected to reach most entities in every industry, because the change touches data collection, systems and the close process, not just the face statements.

For financial services, the standard does more than reshuffle lines. It adds special rules for entities whose main business is investing in assets or lending, which pull items that would otherwise sit in investing or financing into operating profit. It also brings the performance measures that funds and managers quote to investors inside the audited financial statements.

The changes coming into effect

Five categories and new subtotals in the statement of profit or loss

Every item of income and expense must be classified into one of five categories, and two new subtotals are mandatory: operating profit or loss, and profit or loss before financing and income taxes. Today operating profit is not defined in IFRS, so entities that already show it may well find its content changes.

Category	What it typically contains
Operating	The residual category: everything not required elsewhere, including volatile or unusual items
Investing	Returns on cash and cash equivalents, equity accounted investments, and assets that generate a return individually and largely independently of other resources (for example debt and equity investments)
Financing	Income and expenses on liabilities that only raise finance (such as bank loans), plus interest and interest rate effects on other liabilities
Income taxes	Tax expense or income under IAS 12 and related foreign exchange differences
Discontinued operations	Income and expenses of discontinued operations under IFRS 5

A few classification points deserve early attention:

• All entities classify results of equity accounted investees in the investing category, which will move them out of operating profit where they are shown above it today.

• Interest income on cash and cash equivalents goes to investing, not operating, for most entities (investment entities are an exception, as investing in assets is their main business activity).

• Foreign exchange differences follow the category of the item that gave rise to them, unless that causes undue cost or effort, in which case they go to operating.

• Entities whose main business activity is investing in assets or providing financing (for example investment entities) have special rules that keep related income and expenses in operating.

Management defined performance measures (MPMs)

Subtotals of income and expenses that are not specified by IFRS and that management uses in public communications to convey its view of performance, such as adjusted profit or EBITDA, now have to be disclosed in a single note in the financial statements. The note explains each measure and reconciles it to the most directly comparable IFRS subtotal. MPMs therefore move inside the audited financial statements and attract more regulatory scrutiny.

Aggregation, disaggregation and labelling

IFRS 18 gives the primary statements and the notes distinct roles: the primary statements are a structured summary, and the notes carry the detail. Entities aggregate items with shared characteristics and disaggregate those without, and must disclose material detail in the notes when it is not on the face of the statements. The label "other" may be used only when no more informative label exists. Notes must also say which line items in the primary statements their amounts sit in, and additional line items or subtotals must be built from IFRS compliant amounts, stay consistent between periods and not be shown more prominently than required totals.

Operating expenses

Operating expenses are still presented by nature or by function. Entities that present by function now face additional disclosure requirements.

Where items land for an investment entity

Item	Category
Fair value gains and losses on investments, including unconsolidated subsidiaries held at fair value through profit or loss	Operating
Dividends, interest and realised gains/losses	Operating
Management and performance fees, administration, custody and professional costs of the investing activity	Operating
Income and expenses on cash and cash equivalents	Operating (all of it, whatever the cash is held for)
Share of results of equity accounted investments in associates, joint ventures and subsidiaries	Investing, always; an additional subtotal is allowed
Interest on borrowings, such as credit facilities	Financing
Derivatives hedging borrowing costs	Financing
Derivatives hedging foreign exchange on investments	Operating (follows the risk hedged, with a simplification where allocation would involve undue cost or effort)
Foreign exchange on investments / on borrowings	Operating / Financing (follows the underlying item)

Timeline and application

IFRS 18 is effective for annual periods beginning on or after 1 January 2027. IFRS 18 must be applied retrospectively. There is no prospective option. In practice this means:

• Comparative information for the preceding period is presented using the new categories, subtotals, MPM disclosures and aggregation principles, so a calendar year entity restates 2026 when it publishes 2027.

• The transition provisions require reconciliations between the IAS 1 and IFRS 18 presentation of the statement of profit or loss for comparative periods.

• If a retrospective adjustment or reclassification affects the statement of financial position, the opening position of the preceding period may also need to be presented. The main impact of IFRS 18 is on profit or loss and cash flows, but confirm this for your own reclassifications.

How we can help?

We support finance and fund reporting teams from the initial impact assessment of IFRS 18 to the implementation of the standard, ensuring their financial statements are compliant.

• Main business activity assessment 

• Classification mappings 

• MPM and investment KPI review 

• Face statements and note disclosure updates 

• Restating 2026 comparatives 

  
  

If you'd like to understand the impact IFRS 18 will have on your financial statements, or need assistance implementing this new stanard, we'd be happy to help. Please reach out to paul.young@anomalyinternational.com for further information on how we can assist.

*Please note that this article is intended as a general guide only and should not be relied upon as legal or professional advice. Deadlines and requirements are subject to change and we recommend seeking tailored advice for your specific circumstances.