# IFRS 18 adoption support for US subsidiaries and IFRS reporters

Canonical: https://finbryn.com/us/services/technical-accounting-advisory/ifrs-18-adoption-support

Finbryn provides IFRS 18 adoption support for US subsidiaries and IFRS reporters: a gap assessment against IAS 1, a recast 2026 comparative statement of profit or loss, operating, investing and financing classifications and a draft management-defined performance measures note. Checked 2026-10-16 on ifrs.org: IFRS 18 applies to annual periods beginning on or after 1 January 2027.

If your parent reports under IFRS Accounting Standards, its income statement is about to change shape, and so is the pack you send it. [IFRS 18](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-18-presentation-and-disclosure-in-financial-statements/), Presentation and Disclosure in Financial Statements, replaces IAS 1. The IFRS Foundation issued it in April 2024 and set the effective date at annual periods beginning on or after 1 January 2027. Because the standard requires comparatives to be restated, a calendar-year group needs its 2026 numbers in the new format, which means the work starts in 2026.

Two audiences read this page. The first is the controller of a US subsidiary who has just received the group's IFRS 18 timetable and a revised reporting-pack template. The second is the finance lead of a US company that reports under IFRS itself, for example because of a foreign listing or lender. US GAAP has no matching standard. The nearest thing is ASU 2024-03 on expense disaggregation, which applies only to public business entities and not to the typical US subsidiary.

Finbryn prepares the analysis, schedules and draft disclosures for management to review and adopt. Management owns the conclusion and the company's auditor decides whether it is acceptable. The parent's group auditor and group policy decide the final presentation.

The recurring monthly mechanics sit with the [IFRS reporting packs service](/services/month-end-close-reporting/ifrs-reporting-packs-us-subsidiaries); this page covers the one-off change project. A first-time move to IFRS is the [IFRS conversion service](/services/month-end-close-reporting/ifrs-conversion). Group statements are built in [consolidations](/services/month-end-close-reporting/consolidations), and the two-framework comparison is in the [US GAAP vs IFRS guide](/guides/us-gaap-vs-ifrs-key-differences). The [GAAP vs IFRS checklist](/tools/gaap-vs-ifrs-checklist) is a quick screen for where to look first.

What you get: Gap assessment of the current income statement against IFRS 18; Chart of accounts mapped to the operating, investing and financing categories; Recast comparative statement of profit or loss; Inventory of management-defined performance measures with draft reconciliation; Updated reporting-pack template for the group

Software we work in: Microsoft Excel, QuickBooks Online, NetSuite, Sage Intacct

## What does IFRS 18 change in the income statement?

IFRS 18 sorts income and expenses into five categories: operating, investing, financing, income taxes and discontinued operations. Operating is the default. It holds everything not classified elsewhere, whether or not the item is unusual or volatile. The standard then requires two new subtotals, operating profit and profit before financing and income taxes. It doesn't change how profit is measured, only how the statement is laid out.

| Line in the statement of profit or loss | IFRS 18 category |
| --- | --- |
| Revenue, cost of sales, selling and administrative expenses, research and development | Operating |
| Goodwill impairment loss | Operating |
| Share of profit of associates and joint ventures; rent or dividends from investments | Investing |
| Income and expenses on cash and cash equivalents | Investing |
| Interest on borrowings and lease liabilities | Financing |
| Interest on pension liabilities | Financing |
| Income tax expense | Income taxes |

Foreign exchange differences follow the category of the item that gave rise to them, with a cost-or-effort exemption that lets a company use the operating category. Banks and insurers classify income and expenses differently, and most banks won't present the second subtotal.

The standard also sets grouping principles and, for companies that present expenses by function, requires disclosure in the notes of depreciation, amortization, employee benefits, impairment losses and inventory write-downs included in each operating line.

## What are management-defined performance measures?

A management-defined performance measure, or MPM, is a subtotal of income and expenses that a company uses in public communications outside the financial statements to give management's view of its performance as a whole. Adjusted EBITDA and adjusted operating profit are the usual examples. Free cash flow, net debt and customer counts are not MPMs, because they aren't subtotals of income and expenses.

What counts as public communication: management commentary, press releases and investor presentations. Oral remarks, transcripts and social media posts are excluded for the purpose of identifying MPMs.

A company that has MPMs discloses them in a single note with:

- A reconciliation to the closest subtotal listed in IFRS 18 or required by another IFRS standard, showing the income tax effect and the effect on non-controlling interests for each reconciling item.
- A description of how the measure is calculated and why it communicates management's view.
- An explanation of any change in the measures during the period.
- A statement that the measure reflects management's view and may not be comparable with similarly labeled measures of other companies.

A US subsidiary may have none if it doesn't publish its own investor material. The group's communications decide, so the first task is to ask the parent which measures it intends to disclose and which subsidiary figures feed them.

## What changes in the cash flow statement?

IFRS 18 comes with limited amendments to IAS 7. Two matter for a US subsidiary.

First, a company using the indirect method now starts the operating section from operating profit, not from profit before tax or net profit. If the pack template begins from a different figure, the mapping needs rework.

Second, the choices for interest and dividends narrow. For most companies, interest and dividends paid are classified in financing activities, and interest and dividends received in investing activities, where IAS 7 allowed options before.

US GAAP works differently. FASB Statement 95, codified in ASC 230, classifies interest paid, interest received and dividends received as operating cash flows, and dividends paid as financing. A US subsidiary on IFRS 18 therefore carries a recurring classification difference between its US cash flow statement and the IFRS pack. It's one more line in the bridge, and it is easier to build once, in 2026, than to reconcile after the comparatives are restated.

## Who can use IFRS 19 and what does it reduce?

[IFRS 19](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-19-subsidiaries-without-public-accountability-disclosures/), Subsidiaries without Public Accountability: Disclosures, was issued in May 2024 and is effective, like IFRS 18, for annual periods beginning on or after 1 January 2027, with earlier application permitted. It's voluntary. A subsidiary that applies it uses the recognition and measurement requirements of other IFRS standards but the reduced disclosure requirements in IFRS 19.

A subsidiary is eligible if two things are true. It doesn't have public accountability, meaning no publicly traded debt or equity and no holding of assets in a fiduciary capacity for a broad group of outsiders as a primary business. And its ultimate or any intermediate parent produces consolidated financial statements available for public use that comply with IFRS Accounting Standards.

For most US subsidiaries this is a side question. They report to the parent through a pack, not through standalone IFRS financial statements. IFRS 19 matters if the subsidiary does prepare its own IFRS statements, for a lender or an investor, and wants to cut the footnotes. IFRS 18 also provides that an entity applying IFRS 19 doesn't have to present the quantitative information required by IFRS 19 paragraph 178(f) (IFRS 18, paragraph C2).

## What should you do before 1 January 2027?

The transition rule drives the calendar. IFRS 18 is applied retrospectively under IAS 8, interim statements in the first year apply it, and the comparative year is restated. For a calendar-year company, the 2026 income statement needs an IFRS 18 version when the 2027 statements are prepared, and the 2027 interim packs need it as they go.

A workable sequence:

1. **Q4 2026 or earlier:** run a gap assessment of the current income statement and chart of accounts against the five categories.
2. **Map each account** to operating, investing or financing, with the rule applied. Interest on leases and pensions is the usual surprise.
3. **Ask the parent** for its MPM list, the new pack template and the dates for the first IFRS 18 reporting cycle.
4. **Recast 2026** quarter by quarter in the new layout, and keep the reconciliation to the old IAS 1 amounts, which the standard asks for.
5. **Update the bridge** between US GAAP and IFRS for the cash flow and category differences described above.

The work is mostly mapping and reporting, so it's well-suited to a project outside the monthly close. Group policy and the group auditor decide the final presentation, and we write to their instructions.

## The process

1. **Get the group requirements**: The parent's IFRS 18 timetable, revised pack template, policy manual and MPM list.

2. **Run the gap assessment**: Compare the current income statement and chart of accounts with the five IFRS 18 categories and the two new subtotals.

3. **Map accounts to categories**: Assign every income and expense account to operating, investing or financing, with a note on each judgment.

4. **Recast the comparative year**: Rebuild the prior-year statements in the new layout with a reconciliation to the amounts reported under IAS 1.

5. **Draft notes and update the pack**: MPM reconciliations where they apply, expense-by-nature disclosures, and the revised template populated.

## Common problems we fix

| The problem | How we fix it |
| --- | --- |
| The parent sent a new template in October and the first IFRS 18 close is in January | We map your accounts to the template first and recast the comparative quarter by quarter, so the January pack is a repeat, not a first run. |
| Nobody knows which adjusted measures count as management-defined performance measures | We list every subtotal in the parent's investor material, test each against the definition and draft the reconciliation note for those that qualify. |
| Lease and pension interest sits inside operating expenses today | Those lines are moved to the financing category in the map, with the effect on operating profit shown before and after. |
| The cash flow statement starts from a different figure than the group's new template | The indirect method is re-based on operating profit, and the interest and dividend classification differences go into the bridge. |

## By the numbers

| Figure | What it means | Source |
| --- | --- | --- |
| 1 January 2027 | IFRS 18 effective date for annual reporting periods, with earlier application permitted | [ifrs.org/issued-standards/list-of-standards/ifrs-18-presentation-and-disclosure-in-financial-statements](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-18-presentation-and-disclosure-in-financial-statements/) (2026-10-16) |
| 2 subtotals | New defined subtotals required in the statement of profit or loss: operating profit and profit before financing and income taxes | [ifrs.org/content/dam/ifrs/project/primary-financial-statements/ifrs-standard/projectsummary-ifrs18-april2024.pdf](https://www.ifrs.org/content/dam/ifrs/project/primary-financial-statements/ifrs-standard/projectsummary-ifrs18-april2024.pdf) (2024-04-01) |

## Glossary

- **IFRS 18**: The IASB standard issued in April 2024 that replaces IAS 1 and sets the structure of the statement of profit or loss.

- **Operating profit**: The IFRS 18 subtotal after income and expenses in the operating category, the default category for everything not classified elsewhere.

- **Management-defined performance measure**: A subtotal of income and expenses used in public communications outside the financial statements to show management's view of performance.

- **IFRS 19**: A voluntary standard for eligible subsidiaries without public accountability, applying other IFRS standards with reduced disclosures.

- **Public accountability**: Having publicly traded debt or equity, or holding assets for a broad group of outsiders as a primary business.

## Frequently asked questions: IFRS 18 adoption support for US subsidiaries and IFRS reporters

**Q: What is IFRS 18 and when does it take effect?**

A: IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 and applies to annual periods beginning on or after 1 January 2027, with earlier application permitted (ifrs.org, checked 2026-10-16). It adds the operating, investing and financing categories, two new subtotals and disclosure of management-defined performance measures.

**Q: How does IFRS 18 change the income statement compared with IAS 1?**

A: It requires five categories (operating, investing, financing, income taxes, discontinued operations) and two defined subtotals, operating profit and profit before financing and income taxes. It doesn't change how profit is measured. IFRS 18, issued in April 2024, ends the layout variation IAS 1 allowed.

**Q: Which subsidiaries can use IFRS 19 reduced disclosures?**

A: A subsidiary with no public accountability whose ultimate or an intermediate parent publishes consolidated IFRS financial statements for public use. IFRS 19 was issued in May 2024, takes effect for annual periods beginning on or after 1 January 2027 and is voluntary.

**Q: Does a US subsidiary reporting under US GAAP have to adopt IFRS 18?**

A: Not for its own US GAAP statements. IFRS 18 matters through the parent's group reporting: the pack the subsidiary sends has to follow the group's new template from the first reporting cycle under the standard. US GAAP has no matching presentation standard; ASU 2024-03 applies only to public business entities, from annual periods beginning after December 15, 2026.

**Q: Do I have to restate 2026 comparatives?**

A: Yes, for a calendar-year group adopting from 1 January 2027. IFRS 18 is applied retrospectively under IAS 8, so the prior-year comparative is restated in the new layout in the first year of application, along with a reconciliation to the amounts reported under IAS 1 (IFRS 18, paragraphs C2 and C3).

**Q: What counts as a management-defined performance measure?**

A: A subtotal of income and expenses used in public communications outside the financial statements that gives management's view of performance, such as adjusted EBITDA. Free cash flow isn't an MPM because it isn't a subtotal of income and expenses. IFRS 18, issued in April 2024, requires MPMs to be disclosed in one note with a reconciliation.

Related services:
- [IFRS reporting packs for US subsidiaries of foreign parents](https://finbryn.com/us/services/month-end-close-reporting/ifrs-reporting-packs-us-subsidiaries)
- [IFRS conversion](https://finbryn.com/us/services/month-end-close-reporting/ifrs-conversion)
- [Consolidations](https://finbryn.com/us/services/month-end-close-reporting/consolidations)
- [Financial statement preparation](https://finbryn.com/us/services/accounting-services/financial-statement-preparation)

Industries:
- [Manufacturing](https://finbryn.com/us/industries/manufacturing)
- [Professional services](https://finbryn.com/us/industries/professional-services)

Related guides:
- [US GAAP vs IFRS: Key Differences for US Companies](https://finbryn.com/us/guides/us-gaap-vs-ifrs-key-differences)
- [New US GAAP Standards Effective 2026 to 2028](https://finbryn.com/us/guides/new-us-gaap-standards-effective-2026-2028)

## Sources

1. [IFRS Foundation, IFRS 18 Presentation and Disclosure in Financial Statements](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-18-presentation-and-disclosure-in-financial-statements/) (2026-10-16)
2. [IFRS Foundation, IFRS 18 Project Summary (April 2024)](https://www.ifrs.org/content/dam/ifrs/project/primary-financial-statements/ifrs-standard/projectsummary-ifrs18-april2024.pdf) (2026-10-16)
3. [IFRS Foundation, IFRS 19 Subsidiaries without Public Accountability: Disclosures](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-19-subsidiaries-without-public-accountability-disclosures/) (2026-10-16)
4. [IFRS Foundation, IFRS 19 Project Summary and Feedback Statement (May 2024)](https://www.ifrs.org/content/dam/ifrs/project/subsidiaries-smes/ifrs-standard/ifrs19-projectsummary.pdf) (2026-10-16)
5. [FASB, ASU 2024-03 and ASU 2025-01: Disaggregation of Income Statement Expenses](https://storage.fasb.org/ASU%202025-01.pdf) (2026-10-16)
6. [FASB, Statement 95: Statement of Cash Flows (codified in ASC 230)](https://storage.fasb.org/aop_fas95.pdf) (2026-10-16)

Reviewed October 2026

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