IFRS 18 in the UAE: What Changes for Your Financial Statements from 2027

IFRS 18 is the biggest change to how UAE companies present their income statement in more than two decades. It replaces IAS 1 for annual periods starting on or after 1 January 2027. Because comparatives must be restated, the 2026 figures you are closing now will appear in the new format in your first IFRS 18 accounts. For IFRS 18 in the UAE, the practical work therefore starts this year, not next.

What is IFRS 18?

IFRS 18 Presentation and Disclosure in Financial Statements was issued by the International Accounting Standards Board to make financial performance easier to compare between companies. It does not change how most items are recognised or measured. It changes how they are grouped, labelled and explained.

Three changes do most of the work:

1. a new structure for the statement of profit or loss, with defined categories and required subtotals
2. mandatory disclosure of management-defined performance measures
3. stronger rules on aggregating and disaggregating information

Change 1: new categories and subtotals in profit or loss

Income and expenses must be classified into categories, chiefly operating, investing and financing, with income taxes and discontinued operations shown separately.

Two new subtotals become mandatory:

• Operating profit
• Profit before financing and income taxes

Today, UAE companies label "operating profit" in many different ways. Some include share of profit from associates, some exclude impairment, some put foreign exchange in finance costs. IFRS 18 sets the boundaries. For most trading and service companies, fair value changes on investments, rental income from investment property and share of results of associates and joint ventures will sit outside operating profit, in investing. Interest on borrowings will sit in financing.

Companies whose main business is investing or providing finance, such as banks, insurers and some holding companies, follow specific rules that can move items into operating profit.

Change 2: management-defined performance measures

Many UAE groups report EBITDA, adjusted EBITDA, "underlying profit" or "normalised net income" in investor packs, bank covenants and board papers. Under IFRS 18, if a subtotal of income and expenses is used in public communications outside the financial statements to convey management's view of performance, it becomes a management-defined performance measure (MPM).

MPMs must be disclosed in a single note, with:

• a description of what the measure shows and why it is useful
• how it is calculated
• a reconciliation to the most directly comparable IFRS subtotal
• the tax effect and non-controlling interest effect of each reconciling item

The note is audited. Every adjustment you make to get to "adjusted EBITDA" will now be visible to readers and reviewed by your auditor.

Change 3: aggregation and disaggregation

IFRS 18 sets principles for when items should be grouped and when they should be split out. Large "other expenses" lines will be harder to defend. Companies that present expenses by function, such as cost of sales and administrative expenses, must also disclose certain expenses by nature in the notes, including depreciation, amortisation, employee benefits and impairment.

Knock-on change to the cash flow statement

Alongside IFRS 18, amendments to IAS 7 make operating profit the starting point for the indirect method. For most companies, the choice over where to classify interest and dividends paid and received is removed. Cash flow templates and covenant calculations that rely on the old classification need updating.

Why IFRS 18 matters in the UAE

Corporate tax starts from your accounts

UAE corporate tax uses accounting net profit as the starting point for taxable income, and Ministerial Decision No. 114 of 2023 requires financial statements prepared under IFRS, with IFRS for SMEs available to businesses with revenue that does not exceed AED 50 million. IFRS 18 should not change net profit, but it will change line items and subtotals. Your tax mapping, from the trial balance to the corporate tax return, needs to be checked against the new layout.

Audited statements are now widespread

Qualifying Free Zone Persons and businesses with revenue above AED 50 million already need audited financial statements for corporate tax purposes. That means a large number of UAE companies will be applying IFRS 18 with an auditor reviewing the transition.

Bank covenants and investor reporting

Loan agreements often define EBITDA by reference to the income statement. If the face of the statement changes, the covenant definition may become unclear. Review facility agreements now.

What about IFRS for SMEs?

IFRS 18 amends full IFRS. Businesses that prepare accounts under IFRS for SMEs are not directly affected by IFRS 18 from 2027. Confirm which framework your entity uses before planning the work.

An IFRS 18 action plan for UAE finance teams

1. Confirm your framework and first-year dates. For a calendar-year company, 2027 is the first year and 2026 is the restated comparative.
2. Map your chart of accounts to the new categories. Tag each income and expense account as operating, investing or financing. Watch investments, associates, foreign exchange and leases.
3. Inventory your performance measures. List every adjusted metric used in board packs, investor updates, websites and lender reports. Decide which are MPMs.
4. Restate 2026 in the background. Build the 2026 income statement in the IFRS 18 format during the 2026 close, so year-end 2027 is not a scramble.
5. Update the ERP and reporting packs. Add category tags in your ERP and consolidation tools so the new subtotals come out automatically.
6. Talk to your auditor and lenders early. Agree judgement areas with the auditor and covenant definitions with banks.

How GULF CONSULT helps

Our accounting and CFO team maps charts of accounts, builds restated comparatives and drafts MPM notes. Our external audit team can review the transition approach. If you are changing systems at the same time, our ERP implementation team can build the IFRS 18 categories into the new chart of accounts.

Talk to GULF CONSULT

Want a quick read on how IFRS 18 will change your accounts? Book a free 30-minute consultation with GULF CONSULT. Email [email protected], call +971 58 600 4833 or message us on WhatsApp.