There is a quality that all major accounting standard introductions of the last twenty years had in common. With IFRS 15 it was the underestimated complexity of performance fulfillment. With IFRS 16 it was the missing system integration for lease liabilities. And with IFRS 18 it will be the underestimation of the operational definition.
That is no prediction. It is a pattern that repeats with every new standard, because companies only truly understand the conceptual depth of a standard when they try to operationally implement it. And because that moment almost always comes later than it should.
IFRS 18 is mandatorily applicable from the 2027 fiscal year. That sounds like sufficient time. It is not. Because what must be done between today and the first close under IFRS 18 is no technical adjustment project. It is a conceptual realignment of the way a company understands, measures, and communicates its financial performance.
This article is for CFOs who want to not just understand IFRS 18 but successfully implement it. It explains what the standard really changes, which specific implementation problems arise, how they are solved, and why CFO leadership in this process is not delegable.
What IFRS 18 Really Changes and Why It Is More Than a Technical Adjustment
IFRS 18 replaces IAS 1. That sounds like a regulatory revision. Conceptually it is far more.
IAS 1 was a framework standard leaving companies substantial freedom in the presentation of their income statement. Various structuring forms were permissible. The delineation between operating and non-operating matters was largely left to the company’s judgment. And management defined performance measures — company-specific metrics like adjusted EBIT or adjusted EBITDA — could be largely freely defined and communicated.
This discretion has over the years led to a situation in which the same economic reality was presented entirely differently in different companies of the same industry. Investors and analysts had substantial effort making closes of different companies comparable. Auditors had little leverage against presentations that were formally rule-compliant but information-politically optimized. And regulators increasingly saw a gap between what IFRS was actually supposed to deliver — transparent and comparable financial reporting — and what was produced in practice.
IFRS 18 closes this gap. Not through more regulation in the bureaucratic sense, but through more structure in the conceptual sense.
The three structural innovations that condition everything else:
The mandatory categories in the income statement
IFRS 18 introduces five mandatory categories into which all income and expenses must be sorted.
The Operating Category captures everything that is part of ordinary business activity.
The Investing Category captures income and expenses from assets that do not serve operating activity.
The Financing Category captures financing-related matters. Added to this are Income Taxes and Discontinued Operations as separate categories.
The consequence is fundamental:
There is no longer a neutral zone. Every item must be categorized. And the categorization must be justified, consistently applied across periods, and traceably aligned with the company’s business model.
The Management Defined Performance Measures
IFRS 18 acknowledges that company-specific metrics have an information value. But it demands for the first time complete transparency about their composition: full definition, reconciliation to IFRS metrics, explanation of why the metric is relevant for steering, and consistent application across periods.
That is not a formal requirement. It is a substantive one. An adjusted EBIT containing different adjustments depending on the quarter does not withstand this requirement. And a metric that cannot explain why it is relevant for steering the specific business model will be critically questioned in the audit.
The coherence between income statement, cash flow, and balance sheet
IFRS 18 demands a strict logical connection between the categories of the income statement and the cash flow presentation. What is classified as operating in the income statement must appear in operating cash flow. What is classified as investing must appear in investing activities.
That sounds self-evident. It is not in practice. Many companies today have discrepancies between their income statement structure and their cash flow presentation that were tolerated under IAS 1. Under IFRS 18 these discrepancies must be resolved.
The Seven Most Common Implementation Problems and How They Are Solved
The conceptual innovations of IFRS 18 sound manageable in the abstract. In operational implementation they unfold a complexity that most projects underestimate. The following seven problems are those that most often arise in implementation projects and become most expensive when recognized late.
Problem 1: The definition of operating activity is harder than expected
The most important decision problem in every IFRS 18 project is the definition of operating activity. What belongs to the company’s ordinary business activity and what doesn’t?
This question sounds simple. It isn’t. Because the same transaction can, depending on the business model, be operating or non-operating. Interest expenses from IFRS 16 lease liabilities are operating when leasing is an integral part of the business model — for example, with a retailer leasing its store space. They are non-operating when leasing only occurs occasionally.
Where the problems arise: many companies have a historically grown close structure in which the delineation between operating and non-operating matters was never explicitly defined. It was implicit. Controllers and accountants knew from experience what belongs where. Under IFRS 18 this implicit logic must become explicit and documented.
What is even harder: the definition must be consistent with the business model, with segment reporting, with internal steering logic, and with the MPMs. These four dimensions must fit together. In many companies they don’t today, because they were developed in different departments and under different objectives.
How it is solved:
The first step is an explicit decision made and documented at CFO level: What is the operating activity of this company? This decision must be in writing, accountable to the CFO, and serve as the basis for all further categorization decisions.
The second step is a structured review of all close items against this definition. For every item not unambiguously assignable to operating activity, a justified decision must be made and documented. This documentation later becomes the basis for auditor communication.
The third step is checking consistency with segment reporting, steering logic, and MPMs. Where inconsistencies arise, they must be resolved, which means either the close structure or the internal steering logic must be adjusted. That is in many companies a leadership conversation the CFO must have with the CEO.
Problem 2: MPMs that are no longer tenable under IFRS 18
Many companies today use MPMs that will create substantial problems under the new standard.
The most common problems:
Inconsistent adjustments:
When a company in different periods removes different matters from its adjusted EBIT, the metric is under IFRS 18 not consistent and therefore not permissible in the communicated form.
Missing connection to steering logic:
IFRS 18 demands that an MPM explain why it is relevant for steering the specific business model. Many MPMs were historically developed for capital market communication, not for internal steering. This discrepancy becomes visible.
Incomplete reconciliation:
The reconciliation from an MPM to an IFRS metric must be complete and traceable. Many current presentations are not.
Where the problems arise:
MPMs were in many companies developed jointly by Investor Relations, management, and finance, often over years, with the goal of presenting their own performance as advantageously as possible. IFRS 18 forces transparency over matters that were previously information-politically at discretion.
How it is solved:
Every MPM communicated today must be checked against the IFRS 18 requirements.
The relevant test questions are:
Is the metric consistently defined and is it consistently applied across periods?
Is the connection to the steering logic of the business model explainable and documentable?
Is the reconciliation to IFRS metrics complete?
MPMs that don’t pass this test must either be redefined, discontinued, or adjusted in their communication. That is a decision process involving CFO, CEO, and Investor Relations and that must be conducted early, not shortly before the first IFRS 18 close.
Problem 3: System landscape not prepared for IFRS 18
The technical implementation of IFRS 18 requires adjustments in ERP systems, consolidation systems, and reporting tools that are substantially more effortful than many projects initially assume.
Concretely, charts of accounts must be structured so that every position can be unambiguously assigned to one of the five IFRS 18 categories. That means in many cases a revision of the chart of accounts, because historically grown accounts combine matters that under IFRS 18 belong in different categories.
Profit center and cost center logics must be consistent with the IFRS 18 categorization. When a company doesn’t separate operating and non-operating matters at the profit center level, automated categorization is not possible and manual efforts arise in every close process.
Consolidation systems must be able to map the new categories. In SAP Group Reporting, Oracle FCCS, or Hyperion that means mapping revisions, validation rules, and reporting templates that must be newly developed.
Where the problems arise:
Many companies only recognize during the project how deep the system adjustments must go. What begins as a configuration task becomes a system development project because the existing chart of accounts cannot map the necessary categorization.
Added to this is the timing problem: ERP adjustments have long lead times. When a chart of accounts revision is decided in spring 2026, it is possibly too late to fully implement and test before the first IFRS 18 close.
How it is solved:
The system analysis must start early, at least 24 months before the first IFRS 18 close. It must be led by someone who understands both the technical IFRS 18 logic and the system architecture. That is a combination rarely combined in one person and that justifies external support.
The implementation approach should be stepwise:
First make the conceptual decisions, then derive the system requirements, then commission the development, then test extensively before the standard becomes mandatory.
Problem 4: Cash flow presentation not consistent with the new income statement structure
As already described, IFRS 18 demands strict consistency between the categorization in the income statement and the cash flow presentation. In many companies this consistency does not exist today.
The most concrete example is interest payments.
Under IAS 7, companies had a choice where to show paid interest in cash flow: in the operating area or in the financing area. When a company has shown interest payments in the financing area of the cash flow but the corresponding interest expenses in the income statement categorized as operating, an inconsistency arises under IFRS 18 that must be resolved.
The same logic applies for received dividends, tax payments, and other matters that today may be classified differently by different people in income statement and cash flow.
Where the problems arise: income statement and cash flow were in many companies the responsibility of different teams, with different system sources and sometimes with different classification logics. These silos were under IAS 1 practically never visible. Under IFRS 18 they become explicitly visible and must be resolved.
How it is solved: a complete consistency check between income statement structure and cash flow presentation is a mandatory early step in the IFRS 18 project. For every item where an inconsistency is found, a decision must be made which classification is the right one. This decision then has consequences for both close components.
Problem 5: Comparative periods that must be effortfully restated
IFRS 18 demands the presentation of comparative periods according to the new requirements. That means the first IFRS 18 close contains two periods: the new fiscal year and the prior year, both under IFRS 18 logic.
The restatement of the comparative period is in many cases substantially more effortful than expected. Especially when historical data lies in systems that don’t support the categorization logic of IFRS 18, data must be manually reclassified.
Where the problems arise: in companies with complex group structures, many entities, or historically grown system landscapes, the restatement of a complete period is a substantial project requiring its own resources and its own scheduling.
Added to this is audit relevance: the comparative period is reviewed by the auditor with the same care as the current year. That means the documentation of the reclassifications must be complete, traceable, and robust.
How it is solved: the restatement project must be planned as an independent sub-project, with its own resources, its own schedule, and its own quality assurance. It should not be placed at the end of the implementation project but run parallel to system implementation, because the insights gained from the restatement often require corrections in the system configuration.
Problem 6: Auditors not prepared for IFRS 18
IFRS 18 brings new audit risks that auditors will examine with particular attention. The categorization decisions, the MPM definitions, and the consistency between income statement and cash flow are all highly judgment-sensitive. That means: auditors will question decisions, discuss alternative classifications, and demand complete documentation.
Companies that have not robustly documented their decisions will lose substantial time in the audit and possibly receive objections requiring rework of the close.
Where the problems arise: many companies do not engage in early communication with their auditors about the IFRS 18 implementation approaches. They present finished decisions to the auditor in the context of the year-end audit, instead of aligning these in advance.
How it is solved: communication with the auditor about IFRS 18 must begin early, at least 18 months before the first close. Material decisions, especially the definition of operating activity and the MPM structure, should be discussed with the auditor in advance. That gives the opportunity to recognize and clarify different interpretations early instead of under the time pressure of the close.
Problem 7: Missing CFO leadership in the implementation project
The most fundamental problem in IFRS 18 implementation projects is none that can be solved with expertise or system technology. It is a leadership problem.
IFRS 18 demands decisions cutting across departmental boundaries: How is operating activity defined? Which MPMs are defined how? What is changed in capital market communication? These decisions cannot be made by an accounting team alone. They require the participation of controlling, investor relations, treasury, IT, and the executive management.
Without CFO leadership steering this cross-departmental process, projects arise in which each department works on its sub-task without establishing the necessary consistency. The result is close items categorized differently in different system components, MPMs not consistent with the income statement structure, and an auditor asking questions for which the company has no uniform answers.
How it is solved: the CFO must personally lead the IFRS 18 project or equip a person in their direct reporting line with this leadership responsibility. The project must have clear governance defining cross-departmental decision processes and positioning the CFO as the last escalation level for conceptual questions.
What a Successful Implementation Concretely Requires
Beyond problem analysis, the question arises what must be positively done to successfully implement IFRS 18. The following five elements are the foundation of a successful implementation.
Element 1: Early start with clear phasing
The critical mistake in IFRS 18 projects is too late a start. The recommended phasing:
Phase 1 in 2025: conceptual work
Definition of operating activity, review of all MPMs against IFRS 18 requirements, consistency check of income statement and cash flow. This phase requires no system development. It requires thinking work and decisions that are documented.
Phase 2 in 2026: system implementation
Chart of accounts adjustments, configuration of consolidation systems, development of new reporting templates, adjustment of mapping logics. This phase must have sufficient time for development and testing.
Phase 3 in 2027: parallel run and restatement
The first half of 2027 should be used for a parallel run, in which both presentation forms are produced, so that deviations can be identified and corrected before the first mandatory close is prepared.
Element 2: Cross-functional project team with clear governance
IFRS 18 affects accounting, controlling, investor relations, treasury, IT, and the executive management. A project driven only by accounting will fail because the necessary cross-departmental decisions cannot be made.
The project team must include all affected functions. It must have clear governance defining who makes which decisions, how conflicts between department interests are resolved, and who has the final decision authority. This authority lies with the CFO.
Element 3: Documentation that is audit-oriented from the start
All categorization decisions, all MPM definitions, all consistency checks between income statement and cash flow: they must from the start be documented in a form supporting auditor communication.
What that concretely means: for every material decision there is a document describing the decision, presenting the justification, naming alternative interpretations, and explaining why they were rejected, and recording the decision-maker with date.
This documentation is not only relevant for auditors. It is the internal memory of the project. In an implementation project over multiple years with changing team members, documented knowledge is survival-critical.
Element 4: Early investment in system analysis and prototyping
The system adjustments IFRS 18 requires are more extensive than assumed in most early project plans. The investment in early and thorough system analysis pays off because it avoids later rework and double work.
Prototyping is a valuable instrument here: before a complete chart of accounts is revised, a prototype with a representative selection of positions can be developed and tested. That shows early whether the conceptual decisions are technically implementable and what unexpected problems arise.
Element 5: Plan capital market communication early
IFRS 18 changes the presentation of results. That means metrics communicated today will look different under IFRS 18, sometimes substantially different.
An EBIT containing today operating and non-operating matters that under IFRS 18 must be presented separately can after categorization deviate substantially from what investors and analysts today expect. These changes must be communicated early, not just with the first IFRS 18 close.
Investor Relations must be involved in the IFRS 18 project and develop a communication strategy explaining changes before they surprise.
Industry-Specific Challenges CFOs Must Know
IFRS 18 doesn’t affect all industries equally. The following industry-specific challenges are particularly common and particularly complex.
Industry and machinery
The central problem for industrial companies is the treatment of lease interest from IFRS 16. In industrial companies leasing extensive production facilities, vehicles, and IT equipment, substantial interest components from IFRS 16 liabilities arise.
The question under IFRS 18 is: are these interests operating or financing-related? The answer depends on whether the leasing is integral to the operating processes of the company. For many industrial companies that is the case, which means these interests must appear in the Operating Category.
That changes EBIT and EBITDA presentations substantially and must be addressed early in capital market communication.
Financial service providers and leasing companies
For financial service providers and leasing companies, the delineation between operating and investing activity is particularly challenging because the core business of these companies consists of managing financial assets.
What for a manufacturing company is unambiguously investing — namely income from investments or interest from extended loans — can for a financial services company be operating. The categorization decisions must precisely reflect the business model and are highly judgment-sensitive for auditors.
Groups with segmented reporting
For groups preparing segment reporting under IFRS 8, an additional consistency requirement arises. The categorizations in IFRS 18 must be consistent with the internal reporting structure underlying the segment reporting.
In many groups, segments are managed under a different logic than the IFRS close is structured. Under IAS 1 that was manageable because the income statement structure was flexible. Under IFRS 18 an explicit reconciliation need arises that will trigger extensive internal discussions in many groups.
Service companies with complex expense structures
Service companies, particularly consulting firms, technology companies, and professional services, often have expense structures with no clear delineation between operating and non-operating matters.
Research and development expenses, restructuring costs, expenses for strategic initiatives: the categorization of these items requires decisions not derivable from the standard alone but requiring understanding of the specific business model.
What the CFO Must Personally Do
There is a temptation that regularly arises in IFRS projects: to fully delegate the topic to group accounting or to external consultants.
This strategy doesn’t work with IFRS 18.
Not because group accounting or consultants would be incompetent, but because the material decisions in IFRS 18 projects are conceptual and strategic in nature, not just technical. They affect how the company defines and communicates its operating activity. They affect which metrics will be central in capital market communication. They affect how internal steering logic and external reporting fit together.
These questions lie in CFO responsibility. They cannot be fully delegated.
What the CFO must concretely do:
The decision about the definition of operating activity must be made and accounted for personally. This decision has consequences for all other categorization decisions in the project. It is the conceptual foundation of the entire close.
The communication about IFRS 18 effects with the supervisory board or board must be led by the CFO. IFRS 18 can change the presentation of material metrics. That is information the supervisory board must have early.
The decisions about changes in the MPM structure must be made at CFO level, because they have direct effects on capital market communication.
And the escalation of conflicts between department interests, which arise in every IFRS 18 project, must be resolved at CFO level.
What I Bring
I am Nicole Vekonj, interim manager finance & controlling. I accompany companies in implementing IFRS 18, from the conceptual definition of operating activity through system implementation in SAP and Oracle to the preparation of auditor communication.
My experience with IFRS implementation projects shows me again and again the same connection: projects starting early, making clear conceptual decisions, and cleanly documenting them are stable at go-live. Projects starting too late, postponing conceptual decisions to the system phase, and neglecting auditor communication are not.
If you, as CFO, want to know where your company stands in IFRS 18 preparation, what the critical next steps are, and which decisions you must make now to not be under pressure in 2027: let’s talk for 30 minutes.
Nicole Vekonj | Interim Manager Finance & Controlling | zahlenkompetenz.de
