Applying IFRS 18 before 2027: a preparer's view
IFRS 18 may be applied before its 2027 effective date. What changes at once, which clients gain from going early, and how to record the decision.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Sooner or later a client's finance director asks whether they should "just get IFRS 18 over with". Perhaps a parent company abroad has already moved, or a lender has started asking for operating profit on the new definition, or the finance director simply prefers to change the layout once, in a quiet year, rather than under pressure.
The standard allows it. Whether it is wise depends on the client, and the firm's role is to lay out the consequences clearly enough that the directors can decide. This article covers what the IFRS Foundation says about timing, what changes the moment a client adopts, how to weigh the choice, and how to prepare the statements in Achekam.
What the IFRS Foundation says about the effective date and earlier application
IFRS 18, Presentation and Disclosure in Financial Statements, was issued by the IASB in April 2024. The IFRS Foundation states that it is effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. It replaces IAS 1.
That is the whole of the permission: a client reporting under full IFRS Accounting Standards may choose to apply it to an earlier annual period. The standard's own transition requirements set out what must then be restated and disclosed, and those paragraphs should be read in full before any recommendation is made. Clients on the IFRS for SMEs Accounting Standard are on a different timetable altogether, set by that standard's own editions.
What changes at once if a client adopts early
The IFRS Foundation notes that the IASB did not reconsider every aspect of IAS 1 when developing IFRS 18, but focused on the statement of profit or loss. That is where an early adopter feels the change first. Three changes arrive together:
- New subtotals. IFRS 18 requires two defined subtotals in the statement of profit or loss: operating profit, and profit before financing and income taxes. The client's income statement layout has to be rebuilt around them.
- Management-defined performance measures. IFRS 18 requires disclosure of subtotals of income and expenses that the standard does not specify but that the client uses in public communications to convey management's view of an aspect of its performance. A client that quotes its own profit measure to lenders or investors will have a new note.
- The cash flow starting point. When IFRS 18 was issued, IAS 7 was amended so that the indirect method starts from the operating profit or loss subtotal, and new requirements were introduced for classifying interest and dividend cash flows.
Plan for all three to land in the same year, and read the transition paragraphs to see how the comparative year must be treated. The detail of each change is covered in IFRS 18's new subtotals and how IFRS 18 changes the cash flow statement.
Who benefits from going early and who should wait
Early adoption tends to make sense where the new presentation solves a problem the client already has:
- a subsidiary whose group reporting will move to IFRS 18, where local statements on the old layout would need reconciling every year;
- a client whose lenders or investors already rely on an operating profit figure, where an early, defined subtotal removes argument about what it contains;
- a client planning a capital raise or sale, where buyers will compare it with entities already presenting on the new basis.
Waiting tends to make sense where the costs are real and the benefit is thin: a single-shareholder company whose statements are read mainly by its bank and the tax authority, a client with an unsettled finance function, or a year already disrupted by an acquisition, restatement or change of auditor. For those clients the extra work of a voluntary transition buys little.
Firm capacity matters too. Early adoption for one client means building the new layout, policies and note wording once, carefully, before the firm has done it at scale. That can be an argument for choosing one well-organised client as a deliberate first case.
Agreeing the decision with the client and recording it
Early application is the directors' choice, made on the firm's advice. Put the advice in writing: what changes, which comparatives will be restated, what the directors gain, and the extra fee if there is one. Ask for the decision to be minuted, and file both documents with the engagement. If the client has an auditor who is not the firm, tell them early, because the auditor will need to plan for the transition too.
Record the decision on the client's permanent file as well, so that next year's team does not have to rediscover which standard the client applies.
Preparing the Studio set: custom lines, rolled-forward wording and a manual standards watch
Three practical points apply in Achekam.
First, the layout. A firm can add its own statement lines and groups and change the wording of any row title, and later builds keep those choices. Each custom line still totals into a standard line. Build the new subtotals and labels on a copy of the set, and check that every total agrees before showing the client a draft.
Second, the roll-forward. Staff can roll a set forward to the next year, carrying settings, policies, notes and wording and rebuilding every figure from the new trial balance. That is helpful, but it means last year's IAS 1-era wording arrives in the new year unchanged. Review every carried policy and note against IFRS 18. Adjusting entries, typed comparatives and signatures are not carried forward, so any comparative figures the transition changes must be entered afresh; the mechanics are in rolling statements forward.
Third, the watch. Achekam does not pull a live feed of standards and regulatory changes; the Standards & Regulatory Updates page shows what its knowledge base records. Keep a simple register of which clients adopt IFRS 18 early and in which year, and review it at every planning meeting.
The IFRS Foundation's IFRS 18 page explains the new standard and its effective date. Read it with the client's finance director before the decision meeting, not after.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
