Introduction

The IASB issued IFRS 18 Presentation and Disclosure in Financial Statements in April 2024, representing the most significant change to the structure and presentation of financial statements in over two decades. IFRS 18 replaces IAS 1 Presentation of Financial Statements and is effective for annual reporting periods beginning on or after 1 January 2027, with early adoption permitted. IFRS 18 is to be applied retrospectively.

The new standard responds directly to investor demand for clearer, more comparable and decision‑useful information about financial performance. IFRS 18 introduces enhanced presentation requirements, a new categorisation model for the statement of profit or loss, and mandatory disclosures for management‑defined performance measures (MPMs). Although the core principles apply across all sectors, the implications for insurance, banking, and aviation finance require particular attention due to the nature of their business models.

This article brings together the key themes from across these industries, highlighting common considerations and sector‑specific nuances while maintaining the precise wording required for compliance.

 

What’s Changing Under IFRS 18

IFRS 18 introduces a more structured and consistent profit or loss statement by requiring all entities to classify income and expenses into five defined categories:

  1. Operating
  2. Investing
  3. Financing
  4. Income taxes
  5. Discontinued operation

The standard mandates specific totals and subtotals and introduces clearer disclosure requirements, particularly around MPMs. An MPM is defined as a subtotal of income and expenses that an entity uses in public communications outside the financial statements to convey management’s view of an aspect of financial performance.

IFRS 18 requires entities to disclose the purpose of each MPM and how each relates to IFRS‑defined subtotals and totals. This is intended to enhance transparency while reducing the potential for inconsistent or misleading performance reporting.

IFRS 18 provides enhanced guidance on the grouping (aggregation and disaggregation), description (labelling) and location of information across all the primary financial statements and the notes.

 

Specified Main Business Activities: A Critical Determination

A central feature of IFRS 18 for financial services entities is the introduction of specified main business activities, which cover:

  • Investing in particular types of assets, and
  • Providing financing to customers

Entities meeting these criteria may use an exemption allowing certain income and expenses to remain within the operating category, even if they would otherwise fall into investing or financing. This exemption, set out in IFRS 18.50, is particularly relevant for banks, insurers, and aviation finance entities whose business models naturally incorporate lending, investing or asset‑based activities.

Determining whether an entity has one or both specified main business activities is evidence‑based and requires significant judgement. This assessment is a common challenge across the three sectors.

Cross Sector Considerations in Applying IFRS 18

  1. Classification of Income and Expenses

Across insurance, banking and aviation finance, applying IFRS 18’s general model could result in core business income or expenses being classified outside operating. For example:

  • Under IFRS 18.64, insurers must classify certain insurance finance income and expenses in operating.
  • Banks may need to reassess how interest income and expenses are presented.
  • Aviation finance entities must evaluate how lease income, servicing income or funding costs align with the standard.

In all cases, the specified main business activity exemption plays a crucial role.

  1. Management‑Defined Performance Measures (MPMs)

All three sectors frequently use performance measures outside IFRS, such as:

  • Underwriting performance metrics in insurance,
  • Net interest margin or operating income metrics in banking,
  • Yield‑based metrics in aviation finance.

Under IFRS 18, any performance measure meeting the MPM definition brings mandatory disclosure obligations, including clear linkage to IFRS subtotals. Entities must also ensure consistency between public communications and financial statement disclosures.

Further, entities planning to include alternative performance measures in the notes that are not MPMs must assess whether this is appropriate, given the fair presentation requirements of IAS 8.6A.

Insurance

  • Insurers usually present their expenses by function, for example, insurance service expense.
  • IFRS 18 adds qualitative and quantitative disclosure requirements about the nature of expenses included within each function line item.
  • Insurers should assess whether the requirements of IFRS 18 might affect their disaggregation approach applied under IFRS 17.
  • Insurers need to apply judgement in determining disaggregation of information based on dissimilar characteristics to obtain (i) a useful structured summary in the primary financial statements and (ii) material information in the notes.
  • These combined requirements enhance transparency but add complexity to systems and data structures.

Banking

  • Banks must show evidence that providing financing to customers meets the definition of a specified main business activity.
  • Determining whether investment activities constitute a main business activity requires careful judgement.
  • Banks, therefore, have to follow the general requirements of IFRS 18 applicable to entities in all industries, and also the specific requirements applicable to entities with either or both of the activities specified by the standard.
  • Classification decisions may impact key banking KPIs and external communications.

Aviation finance

  • Aviation finance entities must determine whether investing in assets, such as aircraft, or providing financing is a main business activity supported by evidence.
  • As with other sectors, classification outcomes may significantly impact reported performance metrics and comparability.

 

Conclusion

IFRS 18 brings significant and far‑reaching changes to financial statement presentation across the financial services sector. While common themes exist—particularly around classification, MPMs and main business activity assessments—each industry faces its own considerations aligned to its specific business model.

Early engagement, system readiness, impact assessment and coordination across finance, actuarial, treasury and investor relations teams will be vital to ensure a smooth transition and full compliance ahead of the 2027 effective date.