IFRS 18: When Profit Is No Longer Enough to Understand a Business

By Victor Vera

A few years ago, during a conversation with a business owner, I was asked a simple yet thought-provoking question:

“If my company reported a profit, why does the bank say our performance isn’t as strong as it seems?”

The answer wasn’t hidden in the numbers themselves — it was in how those numbers were interpreted.

For decades, profit has been the figure that attracts the most attention in financial statements. Investors, lenders, managers, and analysts often focus on a single number: net profit.

But anyone who works with financial reporting knows that one figure alone rarely tells the whole story.

This is precisely where IFRS 18 — Presentation and Disclosure in Financial Statements becomes highly relevant.

More Than a New Financial Statement Format

When IFRS 18 is mentioned, many professionals immediately think about changes to the statement of profit or loss.

Technically, that is correct.

However, reducing IFRS 18 to a formatting update overlooks its real purpose.

The standard seeks to improve how financial performance is communicated and understood.

Rather than requiring companies to disclose more information, IFRS 18 aims to present financial information in a way that enables users to answer fundamental questions:

• Is the company’s performance driven by its core business activities?
• How much of the result comes from financing decisions?
• Are there one-off transactions affecting profitability?
• Can investors compare performance more consistently across companies?

These questions are essential for making informed financial decisions.

The Same Profit Can Tell Two Completely Different Stories

Imagine two companies reporting exactly the same net profit.

At first glance, they appear equally successful.

Yet a closer analysis reveals a different reality.

One company generated its earnings through sustainable operating activities.

The other achieved the same result primarily by selling a significant asset.

The reported profit is identical.

The economic story is not.

One of the key contributions of IFRS 18 is helping users distinguish between these situations through a more structured presentation of financial performance.

Financial Reporting Should Explain, Not Simply Comply

Financial reporting has traditionally been associated with regulatory compliance.

Compliance remains essential.

However, financial statements should do much more than satisfy accounting requirements.

They should help investors, creditors, managers, and other stakeholders understand how a company creates value, what risks it faces, and whether its performance is sustainable over time.

That shift in perspective represents one of IFRS 18’s greatest strengths.

Professional Judgment Remains Essential

No accounting standard can replace professional judgment.

Accountants must still evaluate the nature of transactions, determine appropriate classifications, assess materiality, and provide meaningful disclosures.

IFRS 18 does not eliminate professional judgment.

Instead, it increases the importance of applying that judgment consistently and transparently.

As financial reporting becomes more sophisticated, technical expertise becomes even more valuable.

An Opportunity to Improve Financial Communication

Accounting standards evolve because the needs of financial statement users also evolve.

Today, organizations are expected to provide information that goes beyond compliance.

Stakeholders seek transparency.

They seek comparability.

Most importantly, they seek financial information that supports better decision-making.

IFRS 18 is an important step toward that objective.

Ultimately, perhaps its greatest contribution is reminding us that financial performance is not defined by a single number, but by the story behind that number.

About the Author

Victor Vera Public Accountant Specialist in Financial Information Assurance and Internal Control Specialist and Master’s Degree in Finance