The transition to IFRS 18 represents one of the most significant changes in financial statement presentation in decades, raising the standards of transparency and consistency in financial reporting.

IFRS 18 was issued by the IASB (International Accounting Standards Board) in April 2024. It becomes effective on January 1, 2027, with early adoption permitted and retrospective application required.

This new standard does not modify recognition or measurement requirements, but rather introduces significant changes in the presentation and disclosure of financial information, forcing companies to become more rigorous and transparent. It requires companies to clearly explain how they are financed, how they generate income, and which portion of their results corresponds to their core operations.

Issuers, auditors, regulators, and investors will all need to adapt to these new rules.

Three New Categories in the Income Statement

To facilitate analysis and comparability with the cash flow statement, the Income Statement will be divided into:

Operating: income and expenses from core business activities. These may be presented by function, by nature, or both. If presented by function, companies must disclose expenses by nature in the notes, such as depreciation, amortization, employee benefits, and asset impairment. A new mandatory subtotal for operating profit or loss is also introduced.

Investing: income and expenses derived from assets that generate an independent return, investments in associates, joint ventures, unconsolidated subsidiaries, and cash.

Financing: income and expenses associated with financing liabilities (loans, borrowings) and others with interest-related effects, such as accounts payable, contracts with significant financing components, and leases.

Mandatory Subtotals

The standard requires the presentation of:

• Operating Profit
• Profit Before Financing and Taxes

This allows for greater comparability between companies.

Discipline in the “Explanatory Notes” (MPM)

Management-defined performance measures must be included in a single explanatory note, detailing their purpose, calculation method, and reconciliation with IFRS metrics. In addition, they must be applied consistently and will be subject to external audit.

Aggregation and Disaggregation

Similar items must be grouped together, while relevant items must be disclosed separately, avoiding generic descriptions and reinforcing the use of judgment and materiality.

Impact on the Cash Flow Statement

IAS 7 remains in effect, but the starting point for the indirect method changes and will now begin with operating profit or loss.

In conclusion, IFRS 18 is not merely a technical change; it is a more demanding standard that requires companies to genuinely demonstrate how they generate value. Compliance alone is no longer enough: companies must explain, organize, and support information with clarity and consistency. Those who prepare in advance will not only avoid risks, but will also be better positioned in the eyes of investors and the market, where transparency has become a minimum requirement.

Angélica Labraña Vega
Head of Accounting and Audit