IFRS 18: A Checklist and Roadmap for Implementation

Our first article in this series explained why many companies may want to begin preparing for IFRS 18 as early as 2026. The natural next question is: how should such a project actually be structured?

At first glance, IFRS 18 can look like a matter of reformatting the income statement. In practice, implementation is likely to involve considerably more than that. This article outlines the questions companies may want to work through now, and sets out one possible path from initial analysis to first-time application.

Two dimensions that tend to belong together

Much of the discussion around IFRS 18 focuses on a single technical question: which category should a given item of income or expense fall into? That is a reasonable starting point. But getting the classification right on paper is unlikely to be the finish line.

The resulting classification logic also needs to keep working within the ongoing reporting process, ideally not just for the year of first-time application, but reliably and at reasonable effort in the years that follow. A technical analysis that cannot be reflected in the chart of accounts, the relevant account mapping, and existing reporting processes may well result in recurring manual work at each reporting date. That tends to be error-prone, time-consuming, and difficult to sustain over time.

A sound approach to preparing for IFRS 18 will typically consider both dimensions from the outset: the technical classification itself, and how it can be embedded in systems and processes going forward.

Checklist: illustrative questions worth asking

Before moving into implementation, it can be worth taking a structured look at the current starting position. The questions below are illustrative rather than exhaustive, but they point to areas that tend to be worth examining early on.

On the classification of income and expenses:

• Can all material items in the current income statement be mapped to one of the five categories, or are there items where this is not immediately clear?

• Does the entity currently present operating expenses by nature or by function, and is it aware that a by-function presentation may trigger additional disclosure requirements?

On the new required subtotals:

• Can the entity's current measure of operating profit generally be reconciled to the new operating profit or loss, or could the new category boundaries introduce differences?

On management-defined performance measures (MPMs):

• Which externally communicated metrics, such as an adjusted EBITDA or similar measures, does the entity currently use, and is a reconciliation to the nearest required IFRS subtotal already available for each of them?

On aggregation and disaggregation:

• Are there catch-all line items, such as "other income" or "other expenses", that could be bundling together material but economically dissimilar items?

On the statement of cash flows:

• Does the indirect statement of cash flows currently start from a different figure than the future operating profit or loss, and could that require adjustment?

A practical stumbling block: mixed accounts

One issue that tends to get too little attention in overviews of IFRS 18 is how to deal with accounts that bundle together several economically distinct items.

Interest income is a good example. A single interest account can in practice combine several underlying items, for instance interest earned on surplus cash and, where relevant, interest income from financing provided to customers. Depending on which underlying item a given amount actually relates to, and on whether the entity has a specified main business activity, the appropriate IFRS 18 category can differ.

Assigning the entire account to a single category will often fail to reflect the underlying economics. At the same time, historical entries generally cannot be split retrospectively along their original economic substance without difficulty, particularly where comparative information for prior periods is required. This is where a defensible allocation logic tends to be needed, one that can be applied both to historical data and to future transactions. Looking ahead, this often means addressing the issue at the level of the chart of accounts or the booking practice itself, so that the same exercise does not have to be repeated every reporting period.

How much differentiation is appropriate, and how granular any split needs to be, will generally depend on the materiality of the amounts involved and on the entity's specific circumstances. Even so, the example illustrates why the technical analysis behind IFRS 18 is unlikely to be a one-off review of the chart of accounts.

A possible roadmap

An IFRS 18 project tends to follow a broadly similar logic in practice, regardless of a company's size or structure. The phases below reflect one typical way of approaching it.

Understanding the requirements and an initial impact assessment.

The starting point should not be implementation itself, but a solid understanding of the standard and what it could mean for the entity's own business model. Only this assessment can show how significant the actual work is likely to be, and how much time is realistically needed. A company with a simple structure and few mixed accounts is likely to face a different timeline than one with more complex group structures or extensive MPM disclosures.

Formally, IFRS 18 applies for the first time to annual periods beginning on or after 1 January 2027. On a purely arithmetical basis, this means the whole of 2027 remains available, since the financial statements for the 2027 financial year are not finalised until 2028. For companies that report on an interim basis under IAS 34, this window is likely to be considerably shorter, since the first affected interim report of 2027 would already need to be prepared under the new requirements. This arithmetical view, however, should not obscure how much time each phase can actually take. Technical analysis, system changes, training, and a careful dry run rarely run in parallel without friction, and are difficult to compress into the final months before first-time application. Companies that only start their analysis in 2027 are likely to lose exactly the buffer needed for a dry run and any follow-up adjustments.

Technical analysis and development of solutions.

Building on the initial assessment, a more detailed analysis of the relevant accounts and transactions typically follows. This is usually also where decisions on MPMs, on any specified main business activity, and on borderline classification questions are developed and documented. Because many of these decisions involve judgement, it can make sense to start engaging with the auditor as early as this phase. Auditors will typically want to see a documented analysis as the basis for a decision, not just its outcome. This is likely to apply even to companies that appear to be only marginally affected: a blanket assessment that a matter is "not material" is unlikely to be sufficient on its own in most cases, and should ideally be supported by a documented analysis that can then be discussed with the auditor. Ultimately, the assessment of materiality rests with the auditor.

Designing the reporting framework.

The agreed reporting approach is then translated into a structured framework. Process flow diagrams, governance, roles and responsibilities, controls, and documentation are typically formalised at this stage to support consistent application across the organisation. This can include accounting policies, KPI handbooks, reporting structures and disclosure notes, as well as standardised templates. This formalisation is unlikely to be an optional add-on; it tends to be the foundation that allows the new structure to be applied consistently in day-to-day reporting.

Implementation and coordination.

In this phase, the required changes are implemented in the relevant systems and coordinated across the teams involved, such as finance, controlling, and IT.

Training and knowledge transfer.

The new categories and terminology need to reach the teams involved, as do the processes that have actually been changed. It is unlikely to be enough for a single project team to understand how the new classification works technically. Everyone involved in preparing the financial statements on an ongoing basis should understand and be able to apply the revised processes. Because established terms such as operating profit change in substance, it can also be worth planning deliberate external communication.

Dry run and validation.

Even after careful preparation, open questions in practice often only surface once the new process has been run through in full. A deliberate dry run using real data, including test reports and validation of the results, tends to be an essential part of solid preparation rather than an optional extra. The insights gained can then feed back in a targeted way: into the processes themselves, into the documentation developed earlier, which can be refined on this basis, and into the planned reporting structure and related disclosures, which can be sharpened ahead of first-time application.

First-time reporting and audit readiness.

This phase culminates in the first IFRS 18–compliant reporting, including the required comparative information. It tends to help if not only the technical decisions, such as classifications and judgements, are documented in a traceable way, but the changed processes themselves as well. The dialogue with the auditor that began during the analysis phase typically continues here, and can reduce the risk of running into fundamental questions shortly before first-time application.

Common patterns that put timelines at risk

Recurring patterns tend to show up in IFRS 18 projects that can put the timeline at risk.

• The project starts without a prior assessment of the actual impact, so the real scope of work only becomes visible later than it should.

• Mixed accounts are assigned to a single category as a matter of convenience, without sufficiently differentiating the underlying items.

• The dry run is skipped under time pressure, so problems only tend to surface during the live reporting cycle.

• Changed processes are implemented but not adequately documented.

• The auditor is only brought in shortly before first-time application, rather than being involved in technical decisions from an early stage.

Conclusion

A successful IFRS 18 implementation is likely to be more than a one-off classification exercise. It tends to combine a well-founded technical analysis with a durable foundation in processes and systems, so that the new structure works not only in the first reporting year but on an ongoing basis. Companies that develop a clear understanding of their own exposure early, proceed in a structured way, and do not skip the practical test are likely to give themselves enough time to reach first-time application in 2027 without unnecessary time pressure.