The new IFRS 18 standard for preparing the profit and loss statement (P&L) imposes significantly higher accounting requirements on corporations. Through altered categorization of income and expense items, subtotals, and additional disclosures on adjusted metrics, the International Accounting Standards Board (IASB) aims to provide investors with greater transparency. The adjustments should offer a clearer depiction of a company's financial performance.

In addition to the introduction of new subtotals and categories in the income statement, the IASB has harmonized some disclosure options, explains Verena Glutting, Director of Capital Markets & Accounting Advisory Services at PwC Germany. For instance, net interest expenses related to pensions are now clearly classified under financing. Similarly, the presentation of investments in equity-accounted entities is definitively allocated to investment income under the new guidelines, whereas some companies previously included income from equity-accounted investments in operating results. „The comparability will improve with the new categorization, which increases transparency for investors,“ says Glutting.

But it might be questionable whether comparability is improved in some areas. For example, the P&L has traditionally been structured using either the total cost or the cost of revenue method. In the international context, the revenue cost method is commonly employed. „The new IFRS 18 standard now allows a combination of both methods in presenting the operating result. This is new, and it remains to be seen whether it enhances comparability and transparency", says Glutting.

According to Glutting, key among the IFRS 18 provisions are the new disclosures in the footnotes to the financial statements. The IASB's goal is to enhance communication between companies and investors. Henceforth, companies are generally required to provide detailed explanations for any „management-defined performance measures“ disclosed outside the consolidated financial statements, and reconcile them to the most comparable measure defined by IFRS.

Often, companies communicate adjusted earnings figures, such as Adjusted EBITDA, by removing special items like restructuring expenses. These adjusted figures are disseminated through various channels, including websites, investor presentations, or management reports. The IASB wants these publicly disclosed adjusted figures to be comparably and comprehensively anchored in the IFRS footnotes. „While this is very intriguing for investors in terms of transparency, it also means a lot of work for companies“, Glutting warns.

IASB has clarified that oral disclosures and social media postings are exempt from this requirement. Despite examples and specifications provided in the standard, Glutting believes that there are still unresolved questions regarding the definition of „public communication“ that need to be addressed and agreed upon in the coming months.

Although the categorization of operational, investment, and financing activities in the P&L may resemble that of the cash flow statement, Glutting says that no cohesion has been achieved. For instance, while the purchase of a new production plant is classified as an investment in the cash flow statement, depreciation of this asset constitutes an expense within operational earnings in the P&L. „In analyzing the numbers, it's important to be mindful of this distinction. Although the cash flow statement and the P&L employ similar categories, they have their differences.“

The new subtotals in the income statement do not correspond to the commonly used non-IFRS metrics EBIT and EBITDA. Therefore, they cannot be directly derived from the P&L in the future. It remains to be seen what changes will occur in key performance indicators as a result of the new structure and categories, and whether companies will adjust their key performance indicators to the new subtotals. „This could have far-reaching consequences because changing metrics can affect financing agreements, covenants, and/or compensation systems", says Glutting.

Not all of the required data will be readily available from the outset. For example, the impact of changing foreign exchange rates must be presented for all categories, which cannot currently be provided with the click of a button. „The implementation effort of IFRS 18, particularly due to the new structure of the income statement, the additional disclosures in the footnotes, and the subsequent necessary changes in processes and IT systems for companies, should not be underestimated by companies“, Glutting stresses.

While the mandatory adoption of IFRS 18 for financial years commencing on or after January 1, 2027, may seem distant, companies must already be capable of presenting comparative figures for 2026 in accordance with the new requirements. Therefore, data for the 2026 reporting period must be prepared „in both the old and new formats“.