IASB Standards Update [2025]: What's New

IFRS 18: the income statement overhaul

The IASB issued IFRS 18 in April 2024. It is effective for annual reporting periods beginning on or after 1 January 2027, with early adoption permitted. Application is retrospective, meaning entities must restate at least one year of comparatives. The UK Endorsement Board approved IFRS 18 for adoption on 10 December 2025. EU endorsement is expected before the effective date.

IFRS 18 does not change how entities recognise or measure anything. Net profit stays the same. What changes is how income and expenses are classified and presented in the statement of profit or loss.

Under IFRS 18, all income and expenses must be classified into one of five categories: operating, investing, financing, income taxes, and discontinued operations. Two new defined subtotals become mandatory: "operating profit" and "profit before financing and income taxes." Under IAS 1, entities had significant flexibility in how they structured the income statement. Under IFRS 18, the structure is prescribed. An entity whose current income statement does not distinguish operating from financing activities will need to reclassify every line item.

The second major change is management-defined performance measures (MPMs). If an entity uses a non-IFRS metric in public communications to describe its view of financial performance (adjusted operating profit, adjusted EBITDA, or similar), IFRS 18 requires that metric to be disclosed in the notes to the financial statements with a reconciliation to the most directly comparable IFRS subtotal. For the first time, these measures sit inside the audited financial statements rather than in supplementary disclosures or press releases. As an auditor, you will need to audit the MPM reconciliation. That means testing the adjustments, confirming completeness of the disclosed MPMs, and assessing whether the entity has identified all metrics that meet the IFRS 18 definition.

For your audit approach, the key question is which of your clients currently present an income statement that already aligns with the IFRS 18 categories and which ones will need significant restructuring. Entities with simple operations (single-segment, no material investing or financing income outside core operations) may see only minor changes. Entities in financial services, diversified conglomerates, property groups, and businesses with significant investment portfolios face a more complex classification exercise. Start those conversations during the 2026 interim audit, not in December 2027.

IFRS 18 also requires consequential amendments to IAS 7 (Statement of Cash Flows): the indirect method for operating cash flows must now start from the operating profit subtotal defined in IFRS 18, and classification options for interest and dividend cash flows are eliminated. IAS 33 (Earnings per Share) and IAS 34 (Interim Financial Reporting) also pick up amendments.

Amendments effective 1 January 2026

Two sets of amendments apply to annual periods beginning on or after 1 January 2026. Neither is likely to create significant audit effort, but both need to be on your radar.

Annual Improvements Volume 11 makes narrow changes to IFRS 1 (First-time Adoption), IFRS 7, IFRS 9, IFRS 10 (Consolidated Financial Statements), and IAS 7. These are editorial and clarifying amendments rather than substantive changes. The IAS 7 amendment replaces the term "cost method" with "at cost."

Amendments to the Classification and Measurement of Financial Instruments (IFRS 9 and IFRS 7), issued following the IFRS 9 post-implementation review, clarify the application of the cash flow characteristics test to ESG-linked loans. Where a loan's interest rate is linked to ESG metrics, the amendments specify when such features affect the classification of the financial instrument. Additional disclosure requirements in IFRS 7 accompany these amendments. For firms auditing entities with ESG-linked financing (increasingly common among mid-market Dutch and European companies), this is worth reviewing before the December 2026 year-end.

IAS 21 amendments: hyperinflationary presentation currency

In November 2025, the IASB issued amendments to IAS 21 addressing a specific scenario: translating financial statements from a non-hyperinflationary functional currency into a hyperinflationary presentation currency. The amendments are effective for annual periods beginning on or after 1 January 2027, with early adoption permitted.

Under the amendments, entities in this situation must translate all balance sheet and income statement amounts, including comparatives, at the closing rate at the date of the most recent statement of financial position. The IASB developed these amendments after the IFRS Interpretations Committee identified diversity in practice and referred the matter for a narrow-scope amendment.

For most mid-tier European firms, this amendment has limited direct relevance unless you audit groups with subsidiaries in hyperinflationary economies (Argentina, Turkey, Venezuela, Zimbabwe, and other jurisdictions identified by the IMF). If you do, check whether your consolidation methodology handles the new translation requirement correctly.

IFRS 19 amendments: more disclosure relief for eligible subsidiaries

IFRS 19 (Subsidiaries without Public Accountability: Disclosures), issued in May 2024, allows qualifying subsidiaries to apply reduced disclosure requirements in their individual financial statements. In August 2025, the IASB amended IFRS 19 to extend the disclosure relief to cover new standards and amendments issued between February 2021 and May 2024 that had originally been included in full.

The amendments also update IFRS 19 to reflect the IAS 21 hyperinflationary currency amendments and the IAS 37 disclosure requirements being deliberated in the provisions project.

IFRS 19 is voluntary and applies from 1 January 2027. For non-Big 4 firms, this matters if you audit subsidiaries of IFRS groups where the subsidiary itself has no public accountability. Eligible subsidiaries can apply IFRS 19 instead of full IFRS disclosure requirements, reducing the volume of notes significantly. This can reduce audit effort on subsidiary statutory accounts, but only if the parent company's consolidated financial statements are prepared under full IFRS.

Illustrative examples on uncertainty disclosures

In November 2025, the IASB issued six new illustrative examples under the title "Disclosures about Uncertainties in the Financial Statements." These examples do not amend any IFRS standard. They carry no effective date because they illustrate existing requirements. But they carry weight similar to IFRIC agenda decisions: the IASB expects entities to consider them when preparing financial statements, and auditors should consider them when evaluating disclosure adequacy.

All six examples use climate-related scenarios, but the principles apply to any type of uncertainty. The examples cover materiality judgements under IAS 1 (and IFRS 18), disaggregation of information in the notes, key assumptions in impairment testing under IAS 36, qualitative disclosure of obligations that may not meet the IAS 37 recognition threshold but are potentially material, and the effect of climate risks on expected credit loss measurements under IFRS 9.

For auditors, the immediate implication is that the bar for "adequate disclosure of uncertainty" has risen. If your client reports significant climate-related risks in their sustainability report but has no corresponding disclosure in the financial statements, these examples make it harder to defend the omission. The examples don't create new requirements, but they do clarify what the IASB considers an adequate application of existing ones.

Proposed IAS 37 amendments: provisions targeted improvements

The IASB published an exposure draft on IAS 37 amendments in late 2024, with a comment deadline of 12 March 2025. Redeliberations continued through September and December 2025. These amendments are not yet final, so they don't require action today, but they're significant enough to monitor.

The proposed changes target two areas. On recognition, the IASB proposes a new three-step test for determining whether a present obligation exists, replacing the current guidance and withdrawing both IFRIC 6 (Liabilities arising from Participating in a Specific Market) and IFRIC 21 (Levies). Under the current IFRIC 21 guidance, entities recognise some levy-related provisions at a single point in time when a threshold is reached. The proposed amendments would instead require recognition progressively as the entity carries out the activity linked to the threshold. For entities subject to emissions-related levies or similar threshold-based obligations, this could mean earlier and more gradual recognition of provisions.

On measurement, the IASB proposes requiring the use of a risk-free discount rate (excluding non-performance risk) for discounting long-term provisions. At its September 2025 meeting, the IASB confirmed this direction. The proposed amendments would also clarify which costs to include when measuring a provision, aligning the measurement basis with the approach already used for onerous contracts under IAS 37.68A.

If finalised, these amendments are unlikely to become effective before 2027 or 2028. For now, flag clients with material long-term provisions (decommissioning obligations, environmental remediation, threshold-based levies) as potentially affected. The measurement change alone could increase provision balances for entities currently using a rate that includes non-performance risk.

Other pipeline projects to watch

Several IASB projects are nearing completion or entering redeliberation. None of these require action in 2026, but they affect planning beyond that horizon.

Rate-regulated activities: the IASB expects to issue a new standard in the second quarter of 2026. This will affect utilities and other rate-regulated entities by introducing regulatory assets and regulatory liabilities. If you audit regulated utilities, this will be a material change to the balance sheet.

Financial instruments with characteristics of equity: amendments to IAS 32, IFRS 7, and IFRS 18 are being finalised. The key change is enhanced presentation and disclosure for compound instruments, with profit or loss separately attributed to ordinary shareholders, participating rights holders, and noncontrolling interests.

Equity method (IAS 28): the IASB is redeliberating its proposed amendments following feedback on the exposure draft. Application questions are being addressed, but the timeline has not been set.

IFRS for SMEs (third edition): issued in February 2025, the third edition aligns the SME standard with selected improvements from full IFRS, including a revised Section 23 based on IFRS 15 revenue recognition principles. For firms that audit entities applying the IFRS for SMEs, the revenue recognition model is the most significant change in this edition.

Worked example: IFRS 18 income statement reclassification

Client: Dekker Holding N.V., a Dutch mid-market conglomerate with €92M consolidated revenue. The group has three segments: industrial distribution (€54M), property investments (€26M), and financial services (a small €12M leasing operation). Under IAS 1, Dekker presents a single income statement with operating profit, finance costs, and profit before tax.

Step 1: Classify income and expenses into IFRS 18 categories

Dekker must reclassify all income and expenses into operating, investing, financing, income taxes, and discontinued operations. The industrial distribution segment is straightforward (all operating). Property investments require judgement: because Dekker generates rental income from investment properties held alongside its main distribution business, the rental income and fair value gains on investment properties classify as investing category items. The leasing operation's income and expenses classify as operating because providing financing to customers is one of Dekker's main business activities.

Documentation note: record the entity's assessment of main business activities under IFRS 18.52. The classification of the leasing operation as "operating" depends on management's assessment that providing financing is a main business activity, not merely incidental.

Step 2: Present mandatory subtotals

Dekker's restructured income statement now shows: operating profit (industrial distribution plus leasing operation results), then investing category items (property rental income, fair value changes on investment properties), arriving at "profit before financing and income taxes," then financing category items (interest on group borrowings), then income tax, then profit for the period.

Documentation note: compare the new subtotals with the prior-year presentation. The operating profit line under IFRS 18 will differ from Dekker's previous operating profit because property investment income was previously included above operating profit. This is the kind of change that investors notice.

Step 3: Identify and disclose MPMs

Dekker's investor presentations use "adjusted EBITDA excluding property revaluations" as a key metric. Under IFRS 18, this meets the definition of an MPM because it is a subtotal of income and expenses used in public communications to present management's view of financial performance. Dekker must include a reconciliation from adjusted EBITDA to operating profit (IFRS 18 definition) in the notes.

Documentation note: audit the MPM reconciliation for completeness and accuracy. Confirm that all metrics meeting the IFRS 18 MPM definition have been identified, not just the ones management voluntarily discloses.

Step 4: Restate comparatives

Dekker must restate the prior-year income statement under the IFRS 18 structure and provide a reconciliation between the restated amounts and the amounts previously presented under IAS 1. This reconciliation is required for both the annual financial statements and any interim reports under IAS 34.

Documentation note: verify the restated comparatives. IFRS 18 does not require disclosure of the quantitative impact per IAS 8 (the usual adjustment amounts), but the reconciliation between old and new presentation is mandatory.

Practical checklist for 2026 preparation

1. Identify which audit clients will need significant income statement restructuring under IFRS 18. Prioritise clients with mixed business activities (operating plus investing income), complex segment structures, or entities that currently use APMs in investor communications.
2. For the IFRS 9/IFRS 7 amendments effective 1 January 2026, confirm whether any clients have ESG-linked loan features that could trigger a classification reassessment. Review the new disclosure requirements in IFRS 7 for those instruments.
3. Review the six illustrative examples on uncertainty disclosures (November 2025) and assess whether any audit clients have climate-related risks disclosed in sustainability reports that lack corresponding financial statement disclosure.
4. For clients with subsidiaries eligible for IFRS 19, discuss with the group whether applying reduced disclosures in subsidiary statutory accounts would be beneficial. Confirm that the parent entity's consolidated financial statements use full IFRS.
5. Monitor the IAS 37 provisions redeliberations. If you audit clients with material decommissioning obligations or threshold-based levy exposures, brief the engagement partner on the proposed recognition and discount rate changes.
6. Start the IFRS 18 conversation with clients during 2026 interim audits. The retrospective application requirement means the December 2027 year-end is not the starting point; entities need the restated comparatives ready, which requires the classification work to be done in 2026.

Common mistakes to watch for

Treating IFRS 18 as a disclosure-only change. It restructures the income statement, which means the operating profit subtotal changes for many entities. If your analytical review tool benchmarks against the client's prior-year operating profit, the baseline shifts. Plan for restated comparatives before you run year-over-year analysis.

Overlooking the MPM audit requirement. Under IAS 1, management-defined performance measures sit outside the audited financial statements. Under IFRS 18, they move inside. If your audit programme does not include procedures for testing MPM reconciliations, add them before the 2027 cycle.

Ignoring the illustrative examples on uncertainty disclosures. They don't have an effective date, but they illustrate existing requirements and regulators will use them as a benchmark when reviewing financial statements from the December 2025 year-end onward.

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Further reading and source references

• IFRS 18 (Presentation and Disclosure in Financial Statements): Issued April 2024, effective 1 January 2027. Replaces IAS 1 and restructures the income statement.
• Annual Improvements Volume 11: Effective 1 January 2026. Narrow amendments to IFRS 1, IFRS 7, IFRS 9, IFRS 10, and IAS 7.
• IFRS 9/IFRS 7 Classification and Measurement Amendments: Effective 1 January 2026. Clarifies ESG-linked loan classification.
• IAS 21 Amendments: Issued November 2025, effective 1 January 2027. Hyperinflationary presentation currency translation.
• IFRS 19 Amendments: Extended disclosure relief for eligible subsidiaries. Effective 1 January 2027.
• IASB Illustrative Examples on Uncertainty Disclosures: Issued November 2025. Six climate-related examples illustrating existing disclosure requirements.