IFRS 18 and the New Income Statement Format

Introduction

Carlsberg, the Danish brewer, adopted IFRS 18 a year early, from 1 January 2026, and in August 2026 it published its 2025 results restated on the new basis. Its operating profit for 2025, previously reported as DKK 13.4 billion, became DKK 10.2 billion. Its net profit, earnings per share and cash did not change at all. Its operating cash flow, meanwhile, rose from DKK 12.4 billion to DKK 13.7 billion, and its free operating cash flow from DKK 7.0 billion to DKK 8.3 billion, as its restatement document shows.

The same will happen, to varying degrees, at every company reporting under International Financial Reporting Standards (IFRS). IFRS 18, the International Accounting Standards Board's replacement for International Accounting Standard (IAS) 1, applies to annual periods beginning on or after 1 January 2027, with comparatives restated, and the European Union endorsed it in February 2026. It changes no recognition or measurement rule, but it reorganizes the income statement, brings management's adjusted measures into the audited notes and narrows choices in the cash flow statement. For anyone comparing IFRS companies over time or with US peers, the headline figures are about to move.

IAS 1 required few subtotals, so companies defined operating profit, and what sat above or below it, largely as they chose. IFRS 18 replaces that freedom with a defined structure. Every item of income and expense is classified into one of five categories: operating, investing, financing, income taxes and discontinued operations.

Profit before financing and income taxes

A subtotal required by IFRS 18, equal to operating profit plus the income and expenses in the investing category, such as returns on cash, investments and associates and joint ventures accounted for using the equity method. It sits between operating profit and the financing category, and approximates a defined measure of earnings before interest and taxes (EBIT).

The operating category is the default: it contains income and expenses from the company's main business activities and anything not classified elsewhere, so it includes items that companies previously excluded from operating profit, such as restructuring costs and impairments. The investing category holds income from investments that generate returns independently of the company's other resources, including the share of profit of equity-accounted associates and joint ventures. The financing category holds income and expenses on liabilities that only raise finance, such as loans and bonds, plus interest on other liabilities such as leases and pensions. Two subtotals become mandatory: operating profit and profit before financing and income taxes. Banks, insurers and investment companies, whose main business is providing finance or investing, classify some of these items in operating instead.

Where EBIT and EBITDA Land

The new subtotals do not map neatly onto the measures bankers use, EBIT and earnings before interest, taxes, depreciation and amortization (EBITDA). Operating profit under IFRS 18 includes restructuring and impairment charges that many companies used to exclude, and excludes income from associates and joint ventures that many used to include, so it differs from most companies' previous definitions of EBIT and EBITDA in both directions. Equity-method income, the subject of the equity method, now always sits in the investing category, even for companies whose main business is investing, which aligns the subtotal with the usual banker practice of valuing such stakes separately but changes every reported margin that previously included them.

Carlsberg's 2025 figures show how the reclassifications work:

The DKK 3.1 billion fall in operating profit had several causes. Special items, mainly restructuring and integration costs that Carlsberg had shown below operating profit, are now recognized in the relevant cost lines, mostly above it. The share of profit of associates moved out of operating profit into the investing category. Loans to customers in the on-trade, such as bars and restaurants, moved to investing too. And foreign exchange gains and losses and bank fees not related to raising finance moved from financial items into administrative expenses. None of these changes affected profit for the period, which remained DKK 6,978 million. Carlsberg's earnings before depreciation, amortization and impairments, the first subtotal in its cash flow statement, fell from DKK 18.8 billion to DKK 16.2 billion on the new basis, a reminder that any EBITDA multiple applied to an IFRS company now needs to be checked against the definition behind it.

The second major change concerns adjusted measures. Under IFRS 18, subtotals of income and expenses that a company uses in public communications outside the financial statements, such as adjusted operating profit or underlying EBITDA, are management-defined performance measures. The company must disclose them in a single note, explain why each is useful, reconcile it to the most comparable IFRS subtotal and show the tax and noncontrolling interest effects of each reconciling item. Carlsberg now presents its own Carlsberg performance measures aligned with the new subtotals, reconciled to the IFRS figures. For the first time, these figures sit inside the audited financial statements, a contrast with the US, where adjusted figures outside generally accepted accounting principles (GAAP) stay outside the statements, as non-GAAP measures explains.

IFRS 18 also tightens disaggregation. Companies that present operating expenses by function, such as cost of sales and administrative expenses, must disclose in the notes the amounts of depreciation, amortization, employee benefits, impairments and inventory write-downs included in each line. Items must be aggregated and disaggregated according to shared characteristics, and large "other" lines must be explained. For analysts, the nature disclosures make it easier to build EBITDA consistently, because depreciation and amortization by line become visible even for companies that report by function.

The consequential amendments to IAS 7 remove most of the classification choices that made IFRS cash flow statements hard to compare. Every company using the indirect method must now start it from operating profit. For companies whose main business is not financing or investing, interest paid is classified as a financing cash flow, and interest and dividends received are classified as investing cash flows. Companies that previously classified interest paid as operating, as Carlsberg did, will report higher operating cash flow; those that classified dividends from associates as operating will report lower. Shell, for example, expects dividends from its joint ventures and associates to move out of its operating cash flow, according to its 2025 annual report. The general rules on classification are covered in classifying interest, dividends and taxes paid.

The change widens one gap with US GAAP, under which interest paid remains an operating cash flow. A US company and an IFRS company with identical businesses will report different operating cash flow, so the adjustment described in adjusting IFRS reporters for US comparisons remains necessary.

The practical effects arrive in 2027 reports and in the restated 2026 comparatives that accompany them, with early adopters such as Carlsberg already reporting on the new basis. Several pieces of work are affected:

Timing of the Transition

IFRS 18 applies retrospectively, so the first annual report under it, for most companies the year ending December 2027, will restate the prior year, and interim reports during 2027 will restate the comparable periods of 2026. Early adoption is permitted, which means that for a period peers will report on different bases. Foreign private issuers filing IFRS financial statements with the US Securities and Exchange Commission will adopt it on the same timetable as other IFRS reporters.

IFRS 18 is one of the largest changes to IFRS presentation in decades, but it changes how results are shown, not what they are. For analysts, that is an opportunity as much as a disruption: defined subtotals, audited adjusted measures and nature-of-expense disclosures will make IFRS companies more comparable with each other than at any time since IFRS was adopted, even as the cash flow rules move them slightly further from US practice. The US is pursuing a narrower route to similar disclosure, covered in US expense disaggregation disclosures.