IFRS 18 vs. IAS 1: Key Changes for Investment Funds

Published: Oct 27, 2026
By: Mehal Zaveri; Bruce Baylson
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The International Accounting Standards Board (IASB) issued IFRS 18 Presentation and Disclosure in Financial Statements in April 2024. It replaces IAS 1 Presentation of Financial Statements for annual reporting periods beginning on or after January 1, 2027, with earlier application permitted. According to the IASB's Project Summary, IFRS 18 does not change how entities measure financial performance; it changes how performance is presented and disclosed. This article compares key requirements under IAS 1 and IFRS 18, focusing on the matters most relevant to investment funds.

Discover the Key Differences Between IFRS vs IAS

Key Takeaways

IFRS 18 replaces IAS 1 for annual reporting periods beginning on or after January 1, 2027.
IFRS 18 requires two new subtotals in the statement of profit or loss: operating profit or loss, and profit or loss before financing and income taxes.
An entity that invests in assets as a main business activity, such as an investment fund, classifies income and expenses from those assets in the operating category and discloses that fact.
IFRS 18 does not change the IAS 32 classification of redeemable fund shares or units as financial liabilities, but funds should assess how they present distributions on those instruments.

How IFRS 18 Changes Presentation and Disclosure Requirements

IAS 1 prescribed the basis for presentation of general-purpose financial statements. IFRS 18 sets out presentation and disclosure requirements so that financial statements provide relevant information that faithfully represents an entity's assets, liabilities, equity, income, and expenses

The scope is largely unchanged. IFRS 18's general requirements, aggregation principles, and requirements for notes also apply to the statement of cash flows. Like IAS 1, IFRS 18 excludes condensed interim financial statements prepared under IAS 34 Interim Financial Reporting, but applies its aggregation requirements and requirements for management-defined performance measures (MPMs) to them. IFRS 18 retains the provision that entities without equity, as defined in IAS 32 Financial Instruments: Presentation, such as some mutual funds, may need to adapt the presentation of unitholders' interests.

IFRS 18 aligns the objective of financial statements with the IASB's Conceptual Framework for Financial Reporting: information useful in assessing the prospects for future net cash inflows and management's stewardship of the entity's economic resources.

The components of a complete set of financial statements are unchanged, including the option to present profit or loss and other comprehensive income in one statement or two. Requirements on fair presentation, going concern, and the accrual basis have moved to IAS 8, now titled Basis of Preparation of Financial Statements; other general requirements are carried forward.

IFRS 18 Aggregation and Disaggregation Requirements

IAS 1 requires entities to present each material class of similar items separately, without obscuring material information. IFRS 18 adds explicit principles: entities aggregate items with shared characteristics and disaggregate items without them. Entities disaggregate when the resulting information is material and disclose material information not presented in the primary financial statements in the notes. Unlike IAS 1, IFRS 18 permits the label "other" only when no more informative label exists, with further information about the items grouped under it.

How Does IFRS Change the Statement of Profit or Loss?

New Profit of Loss Categories and Require Subtotals

IAS 1 specified minimum line items but defined no categories and no operating profit subtotal. IFRS 18 classifies all income and expenses into five categories and requires two new subtotals: operating profit or loss, and profit or loss before financing and income taxes. The IASB's Effects Analysis on IFRS 18 notes that entities presenting an operating profit subtotal today are likely to change their content to align with IFRS 18.

What Is a Main Business Activity for an Investment Fund?

IAS 1 had no equivalent concept. Entities that invest in assets or provide financing to customers as their main business activity are classified as operating, with some income and expenses. In contrast, other entities are classified as investing or financing. The Effects Analysis gives investment entities as an example. The assessment is a matter of fact, supported by evidence, made at the reporting entity level, and an entity that invests in assets as a main business activity discloses that fact.

In an April 2026 agenda decision, the IFRS Interpretations Committee considered a parent’s separate financial statements. In this specific fact pattern, the parent held and managed investments in subsidiaries and engaged in no other substantive activity. The Committee concluded that this was sufficient evidence that investing in unconsolidated subsidiaries was a main business activity. It emphasized that the assessment requires judgment and depends on the parent’s particular facts and circumstances.

What Does the Operating Category Include for Investment Funds?

The operating category is the default category for income and expenses not classified elsewhere, including volatile or unusual items. For an entity that invests in assets as its main business activity, income and expenses from assets that generate returns individually and largely independently of other resources are classified as operating. These include the income the assets generate, and the income and expenses from their initial and subsequent measurement, including on derecognition, as well as incremental expenses directly attributable to their acquisition and disposal. In a webinar on subtotals and categories in the statement of profit or loss, the IASB gives interest income, dividends, and fair value changes on financial assets as examples. Income and expenses from cash and cash equivalents are classified in the operating category when the entity invests in financial assets as a main business activity, and the applicable IFRS 18 requirements result in operating classification.

IAS 1 required an analysis of expenses by nature or function, presented in the statement or disclosed in the notes. IFRS 18 requires operating expenses to be presented in the statement in a way that provides a useful, structured summary. Where expenses are presented by function, IFRS 18 adds impairment losses and inventory write-downs to the disclosures of depreciation, amortization, and employee benefits, for each line item.

What Does the Investing Category Include?

AS 1 had no investing category. The investing category comprises income and expenses from investments in associates, joint ventures, and unconsolidated subsidiaries; cash and cash equivalents; and other assets that generate a return individually. For an entity that invests in assets as a main business activity, results of associates, joint ventures, and unconsolidated subsidiaries remain in investing if equity-accounted and are classified as operating otherwise.

What Does the Financing Category Include?

IAS 1 required a "finance costs" line item but defined no financing category. IFRS 18 distinguishes liabilities arising from transactions that involve only the raising of finance from other liabilities. Income and expenses from financing liabilities are generally classified as financing. Specified interest expenses and the effects of changes in interest rates on other liabilities are also classified here, subject to the requirements applicable to entities that provide financing to customers as a main business activity.

Only entities that provide financing to customers as a main business activity may choose to classify such income and expenses in operating consistently with their choice for cash and cash equivalents, where that choice applies.

How Does IFRS Affect Redeemable Fund Interests?

Another investment fund consideration is the redeemability of fund interests. Many investment funds classify redeemable shares or units as financial liabilities under IAS 32. IFRS 18 does not change that classification. Funds will need to assess the appropriate presentation of distributions on those instruments and the labels used for profit or loss and changes in net assets. These matters may affect the presentation of the financing category and related subtotals.

Income Taxes and Discontinued Operations Under IFRS 18

The income taxes category comprises tax expense or income recognized in accordance with IAS 12 Income Taxes. Under IFRS 18 as currently issued, taxes or other charges outside the scope of IAS 12 are not classified in the income taxes category. In July 2026, however, the IASB tentatively decided to propose amendments requiring that tax charges imposed by a government as a direct substitute for income taxes be classified in that category. As of the date of this article, those proposed amendments have not been finalized. The discontinued operations category comprises income and expenses from discontinued operations under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

How Does IFRS Classify Foreign Exchange and Derivatives?

IAS 1 did not specify where these are presented. Under IFRS 18, foreign exchange differences follow the category of the items that gave rise to them, or, if that would involve undue cost or effort, the operating category. Classification of derivative gains and losses depends on whether the derivative manages identified risks and is designated as a hedging instrument.

How Does IFRS 18 Affect Other Primary Financial Statements?

The IASB's Project Summary describes the changes to the statement presenting comprehensive income, the statement of financial position, and the statement of changes in equity as minimal. The statement of financial position and the statement of changes in equity are largely carried forward from IAS 1, subject to the new aggregation and labeling principles.

IFRS 18 Note Disclosure Requirements

The structure of the notes and the capital disclosures are carried forward from IAS 1. Requirements not carried into IFRS 18 were moved to IAS 8 or IFRS 7, with only limited wording changes.

What Are Management-Defined Performance Measures?

Management-defined performance measures (MPMs) are new; IAS 1 had no equivalent. An MPM is a subtotal of income and expenses, used in public communications outside the financial statements, to convey management's view of the entity's financial performance. It is not a subtotal listed in IFRS 18 or specifically required to be presented or disclosed by IFRS Accounting Standards For each MPM, the entity discloses in a single note how it is calculated and why it is useful, and reconciles it to the most comparable IFRS subtotal, including tax and non-controlling interest effects Measures that are not subtotals of income and expenses, and gross-profit-like subtotals such as net interest income, are not MPMs

How Do Funds Transition from IAS 1 to IFRS 18?

Effective Date and Transition Requirements (Appendix C)

IFRS 18 applies retrospectively under IAS 8, and comparatives are restated. Instead of the quantitative information in IAS 8, an entity discloses a reconciliation of each line item in the statement of profit or loss from IAS 1 to IFRS 18 for the comparative period. IFRS 18 also contains specific transition requirements for interim financial statements in the first annual reporting period in which IFRS 18 is applied, including specified reconciliations of comparative statement-of-profit-or-loss information. In addition, the amended IAS 34 requires the applicable MPM disclosures in interim financial statements.

Upon first applying IFRS 18, an entity that is eligible to use the fair value option under IAS 28 may change its election for an associate or joint venture. The change moves from the equity method to fair value through profit or loss. In June 2026, the IASB issued targeted amendments to IAS 28 clarifying eligibility for that option, including eligibility based on an entity’s main business activity of investing in the relevant asset types. The amendments take effect when the entity first applies IFRS 18.

Related Amendments to IAS 7, IAS 28, and Other Standards

Under amended IAS 7, an entity using the indirect method starts with operating profit or loss. The amendments also largely remove the existing accounting-policy choices for classifying interest and dividend cash flows. Dividends paid are classified as financing cash flows. Special classification requirements apply to entities whose main business activities include investing in assets or providing financing to customers.