K-IFRS operating profit changes from 2027: Key considerations for M&A
17 April 2026
Operating profit will no longer mean the same number
From 2027, the presentation of the income statement under K-IFRS will change. The most visible change is how operating profit is presented. Operating profit will be redefined as a residual measure that includes all income and expenses that do not fall within the investing, financing, income tax, or discontinued operations categories. In other words, going forward, it may become difficult to interpret operating profit simply as the performance of ‘core operations’ (i.e., revenue less cost of sales and selling, general and administrative expenses), as was often done in the past.
Summary of income and expense categories under IFRS 18
| Category | Description |
|---|---|
| Operating category |
|
| Investing category | Profit or loss arising from the following assets:
|
| Financing category | Profit or loss arising from the following liabilities:
|
(Source: Korea Accounting Standards Board; Korea Investors Service)
As a result, certain items that were previously classified as non-operating profit or loss will now be included in the operating category. Representative examples include gains or losses on the disposal of tangible and intangible assets, impairment losses on tangible and intangible assets (including goodwill impairment), foreign exchange gains or losses and derivative gains or losses, income and expenses arising from business combinations, and donations.
Classification of non-operating items under K-IFRS 1118 (by item)
| Non-operating items (K-IFRS 1001) | Category under K-IFRS 1118 |
|---|---|
| Dividend income, interest income | Investing category |
| Interest expense (including lease interest expense) | Financing category |
| Foreign exchange gains/losses | Category determined based on the nature of the underlying item (operating) |
| Gains/losses related to tangible/intangible assets and right-of-use assets (excluding lease interest expense) | Operating category |
| Gains/losses related to investment assets | Investing category |
| Gains/losses related to investments in subsidiaries and associates | Investing category |
| Derivative gains/losses | Category determined based on the attributes of the underlying item |
| Other non-operating items (miscellaneous gains/losses, etc.) | Operating category |
(Source: Korea Accounting Standards Board; Korea Investors Service)
The new standard applies to fiscal years beginning on or after January 1, 2027. Therefore, when analyzing financial statements published from 2027 onward, it is important to confirm which classification criteria were used to prepare the reported figures.
What should investors watch for?
This change is not merely a presentation update. It can also affect how investors and transaction parties value a company, negotiate contracts, and manage performance after acquisition. In particular, because the scope of operating profit may change, it can influence (i) comparability with historical financial statements, (ii) EBIT and EBITDA used in valuation, (iii) transaction mechanics such as earn-outs and financial covenants, and (iv) post-merger integration (PMI) performance management frameworks.
First, comparability with prior-year operating profit may deteriorate.
Even if operating profit appears to increase or decrease year-over-year after 2027, the change may not necessarily reflect a true shift in underlying operating performance. This is because classification rules may move certain items out of operating profit, or conversely bring a wider set of items into the operating category than before.
Accordingly, investors should avoid judging performance solely based on the growth rate of operating profit and should first assess whether any reclassification effects are present. This check is particularly important for long-term trend analysis, peer comparisons, and precedent transaction analysis.
Second, the meaning of EBIT and EBITDA must be revisited.
This amendment does not only affects the presentation of operating profit under accounting standards. It may also directly affect how EBIT and EBITDA—widely used in investment and transaction practice—are interpreted.
Historically, EBITDA was often derived mechanically from operating profit, and EV/EBITDA multiples were commonly applied. However, since the composition of operating profit may change after 2027, both valuation-oriented EBIT and EBITDA and deal mechanics that rely on EBIT/EBITDA (e.g., earn-out metrics, covenant calculations, purchase price adjustments) may be impacted.
Therefore, when applying multiples from past transactions, one should not simply plug in numbers. It is essential to confirm whether the EBIT and EBITDA used to derive those multiples were calculated on the same basis as the current reported figures. For existing portfolio companies, reclassification to a deal-specific definition may also be required for covenant monitoring and purchase price mechanisms. For investments executed from 2027 onward, parties are more likely to need explicit agreement at the contract stage on which EBIT and EBITDA definition will apply, and which items will be included or excluded.
Third, PMI may require realignment of performance metrics.
The impact does not end at the investment decision. It may also be material during PMI (Post-Merger Integration). After 2027, the acquired company’s reported operating profit structure may differ from the past, creating mismatches between (i) the acquirer’s internal management accounting/investment underwriting metrics and (ii) the acquired company’s statutory financial statement figures. Such misalignment can affect budgeting, monthly performance tracking, management KPIs, business unit performance evaluation, lender reporting, and covenant monitoring.
Accordingly, beyond harmonizing accounting policies, it will be necessary to determine which profit measures will serve as the group’s official management metrics, and how the transaction-date EBIT and EBITDA definitions will be bridged to post-close management definitions. This is especially important for roll-up strategies where multiple acquisitions are integrated, as figures with the same label may have different underlying compositions.
Conclusion: Definitions may matter more than the number itself
In summary, while K-IFRS operating profit may become more standardized in form from 2027, investors may face a landscape where the meaning of the number requires more careful interpretation. Rather than concluding operating profit alone, market participants should assess: (i) whether reclassification effects are present when comparing to historical figures; (ii) how reported numbers differ from valuation-relevant EBIT and EBITDA; (iii) the implications for earn-out terms, covenants, and purchase price adjustment clauses; and (iv) how post-acquisition PMI should align group metrics with statutory reporting.
Ultimately, what becomes more important in M&A practice after 2027 may not be the figure itself, but a clear understanding of the basis on which the figure is produced and the purpose for which it is used. If the number stays the same but the definition changes, the consequences at the negotiation table can be larger than expected.
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