IFRS 18 in the UAE: Replacing IAS 1 and Transforming Financial Reporting

The International Accounting Standards Board (IASB) released IFRS 18, Presentation and Disclosure in Financial Statements, a new standard that replaces IAS 1 and introduces new requirements for the presentation of financial performance and financial statement disclosure.

The standard is mandatory for annual reporting beginning on or after 1 January 2027 and presents one of the most significant changes to financial statement presentation in recent years. In addition to replacing IAS 1, IFRS 18 introduces consequential amendments to other IFRS standards, particularly IAS 7 Statement of Cash Flows, with the aim of improving transparency, consistency, and comparability in financial reporting.

What is IFRS 18?

IFRS 18 introduced a new standardized framework for presenting the statement of profit or loss, designed to enhance the transparency and comparability of financial reporting.

The standard becomes mandatory for the annual period beginning on or after 1st January 2027, aims to enhance clarity and comparability of financial statements, and requires restatement of comparative information.

While IFRS 18 replaces IAS 1, many of the core principles of IAS 1 are retained in the new IFRS.

A key feature of IFRS 18 is the introduction of new disclosure requirements for Management- Defined Performance measures (MPMs), helping stakeholders better assess an entity’s financial performance.

IFRS 18 aims to enhance the usefulness, transparency, and comparability of financial statements by providing stakeholders with deeper insights into financial performance and future cash flow, making it easier for investors and other stakeholders to understand and compare financial information. As a major update to financial reporting, it will impact many companies reporting under IFRS.

Key Changes Introduced by IFRS 18 in the UAE: New Requirements for Financial Statement Presentation

1. New structure for the statement of Profit or Loss

A key feature of IFRS 18 is the introduction of a standardized framework for presenting income and expenses grouped into specific categories in the statement of profit or loss.

Under the new standard, companies are required to classify income and expenses into the following categories:-

1. Operating
2. Investing
3. Financing
4. Income Taxes
5. Discontinued Operations

The operating, investing, and financing categories form the core framework of the new presentation requirement. Under IFRS 18, entities must categorize income and expenses within the statement of profit or loss using a structured classification approach designed to improve the presentation of financial performance.

The revised structure makes financial statements easier to understand, analyze, and helps investors to better assess an entity’s operating performance and financial results.

2. Enhanced aggregation and disaggregation requirement: The revised IFRS 18 reflects on how financial information should be grouped (aggregated) or separated (disaggregated) and presented within the financial statements. Entities must ensure that items with similar characteristics are presented together, while material information is disclosed separately when necessary. This helps users better understand the nature of transactions and financial results.
3. New subtotals & disclosure requirements: Another key change under IFRS 18 is the introduction of mandatory subtotals within the statement of profit or loss, including:

• Operating Profit or Loss
• Profit or loss before financing and Income taxes
• Profit or Loss

4. Improved presentation & disclosure framework: The key objective of IFRS 18 is to enhance disclosure requirements to help companies present financial information more clearly and consistently. These requirements provide stakeholders and investors with greater insights into an entity’s financial performance and key business activities.
5. Management-defined performance measures (MPMs): A key feature of IFRS 18 is the introduction of new disclosure requirements for Management -Defined performance measures(MPMs), which are financial performance measures used by management that are not specifically defined by IFRS Accounting Standards.

These measures provide additional insight into financial metrics used by management to evaluate, monitor, and communicate the company’s financial performance and business results, which may be included in annual reports, investor presentations, or other public communications.

IFRS 18 requires companies to disclose how Management-defined Performance Measures (MPMs) are calculated, why they are relevant, and how they reconcile to the IFRS-defined performance measure.

Additional Amendments under IFRS 18

Beyond the core changes to financial presentation, IFRS 18 introduces an amendment to IAS 7 Statement of Cash Flows that supports a more consistent presentation of financial reporting and cash flow information.

Key changes include:

• Operating Profit or Loss as the starting point: The revised requirement establishes operating profit or loss as the reference point for calculating cash flow from operating activities using the indirect method.
• Revised classification of Interest & Dividend: The amendments introduce a more uniform approach to classifying interest paid and received and dividend paid and received, making the cash flow statement easier to compare and understand.

These changes aim to enhance the transparency, consistency, and comparability of cash flow reporting, providing stakeholders with more useful information for evaluating an entity’s financial performance and cash flow position.

IFRS 18 Effective Date & Transition Requirement

IFRS 18 becomes mandatory for annual reporting periods on or after 1 st January 2027. IFRS 18 replaces IAS 1 Presentation of Financial Statements and establishes updated requirements for the presentation and disclosure of financial information.

As the standard is applied retrospectively, comparative financial information must be updated to ensure consistency and comparability in line with new presentation and disclosure requirements.

Entities may opt for early adoption of IFRS 18 and must disclose this in their financial statements.  During the transition period, companies preparing interim financial statements under IAS 34 may need to provide additional disclosure and reconciliation to explain the adoption of the new standard.

Difference Between IFRS 18 and IAS 1

IFRS 18	IAS 1
Standardized Income Statement Structure Requires classification of income and expenses into defined categories such as         Operating, Investing, and Financing	Flexible Income Statement structure Allowed more flexibility in how income and expenses were presented and categorized
Management-defined performance measure(MPMs): Requires disclosure of MPMs, including reconciliations to IFRS-defined subtotals.	Non-standard performance Measures:   No specific framework for reporting or reconciling alternative performance measures, such as adjusted EBITDA
Mandatory Operating Profit Subtotal	No Mandatory Operating Profit Subtotal
Enhanced disclosure requirements: detailed disclosure to improve comparability	Limited disclosure: Relied on the general disclosure principle
Consistent presentation and Aggregation rules	Greater presentation flexibility
Improved comparability across entities	Potential variation in financial reporting
Effective from 1 January 2027 Replace IAS 1 and apply to annual reporting periods beginning on or after 1 January 2027.	Current standard being replaced:   IAS 1 will be superseded by IFRS 18

 

Why UAE companies should prepare for IFRS 18 now

Under UAE Ministerial Decision No. 84 of 2025, entities generating annual gross revenue exceeding AED 50 million should prepare an audited financial statement in accordance with IFRS. As audited financial statements play a key role in complying with the UAE corporate tax, businesses must ensure their financial reporting is accurate, transparent, and fully aligned with IFRS requirements.

As IFRS 18 is scheduled to replace IAS 1 from 1 January 2027, the UAE business, including those operating in the DIFC and ADGM, should take early steps to evaluate its impact on financial reporting, IFRS compliance, disclosure, and financial statement preparation to ensure compliance with the new standards.

Working with the best accounting and auditing firm in the UAE, like Jaxa Auditors,  helps businesses navigate the transition smoothly, ensure compliance with the latest IFRS requirements, and prepare financial statements that meet both regulatory and corporate tax obligations.

Partner with Jaxa for IFRS 18 Implementation

Preparing for IFRS 18 requires more than updating financial statements. With IFRS 18 set to replace IAS 1 from 2027, businesses need expert assistance to handle this transition seamlessly. As a trusted UAE FTA tax agent and with 19 years of experience in accounting, auditing, VAT, and corporate tax services, Jaxa’s team of qualified accounting and tax professionals delivers practical guidance in helping businesses prepare for IFRS 18 and strengthen the financial reporting framework.

Our team assists in:

• Alignment with IFRS standards
• Financial statement review and preparation
• Transition planning & Implementation
• Audit readiness support
• UAE Corporate Tax Alignment
• Corporate tax registration & Filing assistance
• VAT registration & VAT return filing in the UAE
• Assistance from the UAE FTA tax agent
• Training & advisory service

Prepare for IFRS 18 with confidence. Speak with Jaxa’s experts for expert accounting, audit, and corporate tax advisory services in the UAE.