To navigate this shift successfully, proactive planning will be instrumental in ensuring alignment across financial reporting frameworks and operational systems, and shaping a clear, compelling financial story for stakeholders.
How are IFRS 18 changes transforming the statement of profit or loss?
IFRS 18 introduces a new presentation requirement for the statement of profit or loss and provides new disclosure requirements related to non-IFRS performance measures.
Three main pillars make up the IFRS 18 changes:
The structure of the statement of profit and loss is based upon how items of income and expense are classified.
Under IFRS 18, entities are required to classify income and expenses into income taxes and discontinued operations, as well as three new categories:
- Operating: This is the default category for items that cannot be classified into the investing or financing categories.
- Investing: This includes income and expenses from assets that generate a return individually and are largely independently of other resources held by an entity.
- Financing: Income and expenses from transactions that involve only the raising of finance.
These classifications are driven by understanding what an entity’s main business activities are. IFRS 18 also introduced a concept called ‘specified main business activities’ that may force a change to how an entity reports its performance for the year when it invests in individual assets for a return and/or provides financing to customers as a main business activity.
For example, entities that provided financing to customers that purchased assets may not have previously included the financing income in operating activities. However, if providing financing to a customer when purchasing the asset is one of the specified main business activities, then the entity would be required to present interest income and expenses in the operating categories.
IFRS 18 also introduces two new defined subtotals: operating profit or loss and profit before financing and income taxes. They provide clearer insights into an entity’s core business performance by distinctly separating them from investing and financing activities.
These changes can impact management’s compensation targets as well as financial covenants in lending arrangements. Understanding these impacts early is essential to enable timely discussions with the appropriate stakeholders.
Reporting entities involved in contract negotiations or M&A transactions should be particularly vigilant, as the new mandatory subtotals could fundamentally change the basis for calculating earn-outs. A careful review of contractual definitions for performance metrics will help ensure alignment and clarify potential impacts.
While Canadian public companies and organizations have long used non-GAAP measures in their Management's Discussion and Analysis (MD&A) to provide management's perspective, IFRS 18 now mandates that a subset of these, termed management-defined performance measures, must be disclosed, explained, and reconciled in financial statements.
MPMs are subtotals of income and expenses used in public communications outside of the financial statements (i.e., MD&A, press releases, investor presentations) to communicate management’s view of an aspect of the entity’s financial performance. This means that publicly listed companies or companies that disclose performance measures outside of the financial statements will be required to include their MPMs as a note in the financial statements. Public communications exclude oral communications, written transcripts of oral communications, and social media posts.
MPMs must be disclosed in a single note in the consolidated financial statements and must:
- reconcile back to the IFRS-defined subtotal;
- the income tax effect and the effect of non-controlling interest for each item disclosed in the reconciliation;
- a description of how the income tax effect is determined;
- explain why the MPM provides useful information about the entity’s financial performance;
- explain how the MPM is calculated; and
- explain any changes to the MPMs.
Measures that were previously only subject to Canadian securities regulators' guidance will now, if they meet the IFRS 18 definition of an MPM, be formally part of the IFRS financial statements, bringing a new level of scrutiny and transparency to these previously unaudited metrics.
Previous guidance on how to group or break down line items in financial statements and notes was less prescriptive, leading to diversity in practice and sometimes obscuring material information. IFRS 18 addresses this gap by requiring entities to aggregate items with shared characteristics and disaggregate items with dissimilar characteristics when the information is material.
This means organizations must re-evaluate their entire chart of accounts and reporting systems to ensure that income, expenses, assets, and liabilities are grouped in a way that provides clear, useful, and structured summaries. For some organizations, this may require a comprehensive review of their current reporting practices, system changes, updates to accounting policies, and new judgments about what information is truly material and how it should be presented.
Four key considerations as you transition to the new IFRS 18 standard
IFRS 18 offers organizations a valuable opportunity to tell the financial story that management wants to share. Reaching that point, however, involves more than rearranging line items—it requires advance planning, technical analysis, and operational adjustments to ensure the new presentation delivers a clear and accurate picture of the business.
Here are four key considerations to keep in mind as your business transitions to IFRS 18.
Transitioning to IFRS 18 is not just an accounting or finance exercise and could impact many stakeholders. The changes will influence how the C-suite frames financial performance, how investor relations teams communicate with the market, how IT and controls teams support auditable data flows, and even how legal and M&A teams structure deals. Boards and audit committees should also be educated on the new requirements to understand how they will alter the way the organization’s financial position and results are presented.
Early alignment across these groups will ensure the organization’s financial statements not only comply with IFRS 18, but also provide a clearer picture of its financial performance.
You may need to review, re-evaluate, and potentially restructure your chart of accounts to ensure that data can be captured and extracted in a way that meets IFRS 18's new presentation requirements. Some organizations will need to split accounts that are reported in multiple places, and current systems may not support this.
Conducting this review early is a critical step, as it will help determine whether system changes or upgrades are required to accommodate the new reporting structure.
Any changes to the chart of accounts will impact reporting, which may require reconfigurations in enterprise resource planning (ERP) systems or business intelligence tools. IFRS 18's new mandatory categories and subtotals demand a more granular level of data classification, which may require new data to be collected, split, and reported on.
Organizations need to ensure their reporting systems can handle this more intensive data classification, and changes to group financial reporting and consolidation procedures may be called for.
The reconciliation requirement for the first year of reporting means organizations need to be able to re-process or re-categorize historical data according to the new standard, adding another layer of complexity to data collection and reporting.
Organizations will need to identify their MPMs and determine which (if any) are within the scope of IFRS 18’s disclosure requirements. They may need to design new systems, processes, and controls around MPMs to appropriately tag and categorize them into the new IFRS 18 categories. This can be a complex task for businesses with diverse operations and reporting systems.
Irrespective of the system, a comprehensive review of all performance metrics disclosed publicly outside the financial statements—such as in the MD&A, investor presentations, or corporate websites—will be necessary. Any metrics meeting the definition of an MPM will need to be incorporated into the financial statements, ensuring consistency and compliance across all reporting channels.
Organizations will also need to proactively communicate these changes to investor relations teams, as any new MPM used in public disclosures must be reconciled within the financial statements.
While IFRS 18 does not change the underlying measurement requirements of IFRS Accounting Standards, the new presentation and disclosure requirements can be complex and may require substantial time, resources, and structural changes for certain organizations.
IFRS 18 effective date: Why start now?
The IFRS 18 standard is effective for annual reporting periods beginning on or after Jan. 1, 2027, with early adoption permitted—but it’s important to recognize that transitioning is not just a reclassification exercise. Organizations that begin preparations early will be better positioned to properly apply the new standard, ensure alignment across business functions, address collateral impacts, and develop a more compelling, transparent performance narrative that strengthens investor confidence.
Comparative reporting will be required retroactively for 2026, meaning an organization must begin understanding how the differences introduced by IFRS 18 will affect its own reporting, capturing data, and implementing changes well in advance.
For organizations with December year-ends, any changes to systems, processes, and controls should be in place from Jan. 1, 2026.
When applying IFRS 18 for the first time, organizations are required to disclose for the comparative period immediately preceding the period in which IFRS 18 is applied (e.g. Dec. 31, 2026 comparative for Dec. 31, 2027 financial statements), a reconciliation between:
- the restated amounts presented applying IFRS 18; and
- the amounts previously presented applying IAS 1.
For example, if an entity previously presented line items in a manner aligned with IAS 1 in its Dec. 31, 2026, financial statements, it must restate those line items in accordance with IFRS 18’s new presentation requirements when preparing its Dec. 31, 2027, financial statements. The restated line items for 2026 must be presented in the statement of profit or loss using IFRS 18’s defined categories and affected line items should be reconciled.
For many organizations, IFRS 18 may have material implications on internal systems, policies, processes, incentive plans, and chart of accounts. Failing to address these changes early can result in a range of risks, including financial penalties, legal repercussions, audit and reporting challenges, operational disruption, and even a loss of investor confidence or reputational damage.
Early adoption of IFRS 18 should be considered by companies navigating M&A activity, GAAP conversions, or a public listing in Canada. Rather than making piecemeal changes—first to adopt IFRS, then again to meet new presentation requirements—businesses can reduce disruption by aligning everything under one coordinated effort.
Supporting a structured transition to the IFRS 18 standard
Navigating the transition to IFRS 18 requires a clear strategy, cross-functional coordination, and a deep understanding of how the changes will affect your organization’s financial story and reporting processes.
Our Accounting Advisory professionals bring a combination of regulatory insight and practical experience to help finance leaders assess their readiness, develop a tailored implementation road map, and tell the best financial story for their business as they navigate IFRS 18 and other evolving IFRS financial standards.
For more information, contact:
Mary Mathews, Partner, Accounting Advisory
Anne-Marie Henson, Partner, National Industry Leader
Derek Youdelis, Senior Manager, Accounting Advisory and National Accounting Standards
The information in this publication is current as of Sept. 2, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.