IFRS 18 Before First-Time Application: IFRS Interpretations Committee Clarifies Key Areas of Uncertainty

The Real Challenge Starts Now

With the mandatory first-time application date of 1 January 2027, the discussion is entering a new phase. While the overall structure of the standard is already well understood, attention is now shifting towards practical application and interpretation issues. Following its June 2026 meeting, the IFRS Interpretations Committee published seven tentative agenda decisions addressing new implementation questions. These complement the first set of decisions issued in April 2026 and demonstrate that many significant areas of uncertainty only emerge during implementation. Companies should therefore incorporate this evolving body of interpretative guidance into their accounting policies and IFRS 18 implementation projects. Several of these tentative decisions are examined below.

Management-Defined Performance Measures in Focus

Particular challenges remain in relation to Management-Defined Performance Measures (MPMs).

Management frequently uses internally defined performance measures to assess and communicate business performance. Under IFRS 18, management-defined measures of an entity's financial performance that are used in public communications outside the financial statements and meet the specified criteria are classified as Management-Defined Performance Measures (MPMs). For the first time, IFRS 18 introduces specific requirements governing the use and disclosure of such measures.

IFRS 18 requires entities to provide clear definitions, appropriate labels, reconciliations to the most directly comparable IFRS subtotal, and transparent explanations. The challenge begins with determining which measures fall within the scope of the MPM requirements.

Hypothetical Income and Expenses

The Committee considered the classification of a performance measure that includes hypothetical income and expenses, that is, amounts that are neither recognised under IFRS nor expected to be recognised in the future.

According to the Committee's tentative view, the inclusion of such hypothetical amounts does not automatically preclude a measure from qualifying as an MPM. If all relevant definition criteria are met, the measure falls within the scope of the MPM disclosure requirements and the related disclosures must be provided.

From a practical perspective, this places greater emphasis on transparent descriptions. The measure must faithfully represent management’s view of financial performance and must not be misleading through either its label or explanatory disclosures.

What Constitutes Public Communication?

Another issue relates to the meaning of the term “public communications.”

According to the tentative agenda decision, confidential presentations provided to a limited group of specifically identified shareholders or potential investors are not automatically considered public communications merely because they are referred to as “investor presentations.” Instead, the assessment depends on the specific circumstances, particularly restrictions on the audience and any prohibition on further distribution.

Entities should therefore evaluate their communication channels carefully and consider their classification when assessing whether a performance measure qualifies as an MPM. Appropriate documentation of these assessments is also advisable.

Classification of Income and Expenses

IFRS 18 introduces mandatory categorisation of recognised income and expenses. The new categories create a range of boundary issues and areas requiring judgment.

Income and Expenses Arising from Cash and Cash Equivalents

Where an entity has investing in financial assets as a specified main business activity, the Committee's tentative view is that income and expenses arising from all cash and cash equivalents should be classified within the operating category, irrespective of any additional main business activities carried out by the entity.

Mixed Presentation of Operating Expenses Is Not an Accounting Policy Choice

Another question concerned the circumstances under which a mixed presentation of operating expenses is required, that is, a combination of presentation by nature of expense and by function of expense. In addition, the Committee was asked whether expenses of the same nature may be allocated across different line items.

According to the tentative agenda decision, a mixed presentation of operating expenses by nature and function is required whenever it provides the most useful structured summary of the entity’s expenses.

Expenses of the same nature may therefore be allocated between line items presented by function and those presented by nature. However, the descriptions of those line items must clearly indicate the types of expenses included.

Furthermore, the agenda decision finalised in April 2026 clarified that disclosures by nature of expense become mandatory whenever any expense line item within the operating category is presented by function.

For many entities, the primary challenge is therefore likely to be data availability rather than interpretation of the requirements themselves.

Subtotals

Labels Must Be Understandable, Not Exhaustive

The Committee was asked whether the label of a subtotal presented in the statement of profit or loss that also qualifies as an MPM must explicitly list every component included in or excluded from its calculation.

According to the tentative decision, where a subtotal is also an MPM, its label does not need to identify every adjustment or component. Instead, the overall package of information, consisting of the label and the accompanying disclosures, is decisive.

The description must faithfully represent the characteristics of the measure, be understandable, and must not mislead users of the financial statements.

As a result, the requirements for consistent terminology and clear explanatory disclosures become even more important.

No Standard-Setting Does Not Mean No Action Required

For the seven IFRS 18 implementation questions discussed in June 2026, the IFRS Interpretations Committee tentatively concluded that no further standard-setting activities are necessary. Nevertheless, the agenda decisions have not yet been finalised.

For entities currently working on IFRS 18 implementation, these agenda decisions will become an important source of interpretative guidance. They provide valuable insight into how the existing requirements of the standard are expected to be applied in situations where uncertainty exists.

Conclusion

The Committee’s decisions clearly demonstrate that the principal challenges arising from the introduction of IFRS 18 lie less in the structure of the new statement of profit or loss and more in the practical application of the new requirements.

Key implementation areas include:

• The definition and documentation of Management-Defined Performance Measures (MPMs);
• The development of appropriate and consistent labels for subtotals;
• The distinction between presentation of expenses by nature and by function; and
• The allocation of income and expenses to the new IFRS 18 categories.

As implementation projects progress, companies should closely monitor further developments in the Committee’s agenda decisions and ensure that their accounting policies, reporting processes and governance frameworks remain aligned with the evolving interpretation of IFRS 18.