HKFRS 18 / IFRS 18: The Income Statement Is Getting a Complete Overhaul

• Standard: HKFRS 18 / IFRS 18 — Presentation and Disclosure in Financial Statements
• Replaces: HKAS 1 / IAS 1
• Effective Date: 1 January 2027 (retrospective — 2026 comparatives must be restated)
• Early Adoption: Permitted

If there’s one standard that will change how every company’s financial statements look, it’s HKFRS 18.

This isn’t a tweak. It’s the most significant overhaul of financial statement presentation since IAS 1 was introduced. It replaces HKAS 1 / IAS 1 for annual periods beginning on or after 1 January 2027, with retrospective application—meaning your 2026 comparative figures need to be restated. That makes 2026 the critical “dual-reporting” preparation year.

If you haven’t started preparing, the clock is already ticking.

Why the Old System Was Broken

Under IAS 1, the income statement had only two required categories: profit from continuing operations and discontinued operations. There were no rules for where items like share of associate profit, fair value gains, or interest on financial assets should sit. The result? Enormous variation in practice. Two companies in the same industry could present their P&L in completely different ways.

Worse, companies routinely published “adjusted earnings” or “underlying profit” in press releases—outside the audited financial statements—with no obligation to reconcile these to official HKFRS numbers. Investors were left guessing.

The New Structure

HKFRS 18 requires all income and expenses to be classified into five mandatory categories:

Category	What Goes Here
Operating	Revenue, cost of sales, and everything from main business activities not classified elsewhere. The default bucket.
Investing	Returns from assets not related to main business—dividends from trade investments, fair value changes on investment properties.
Financing	Cost of raising funds—interest on borrowings, hedging gains/losses on liabilities.
Income Taxes	Per IAS 12.
Discontinued Operations	Per IFRS 5.

Two new mandatory subtotals appear on the face of the income statement:

• Operating Profit (or Loss)
• Profit (or Loss) before Financing and Income Taxes

For the first time, “operating profit” will be calculated consistently across all entities. That’s a big deal for analysts and investors.

The MPM Revolution

This is the part that will keep CFOs up at night.

Any subtotal of income and expenses that management uses in public communications—earnings releases, investor presentations, analyst calls—and that is not defined by HKFRS, must now be disclosed within the audited financial statements.

For each Management-Defined Performance Measure (MPM), the entity must:

• Explain why it provides useful information
• Reconcile it to the most comparable HKFRS-defined line item
• Disclose the income tax effect and the effect on non-controlling interests
• Provide comparative period MPMs with explanations for any changes

No more unreconciled “adjusted EBITDA” floating around in press releases. These measures are now inside the audit scope.

Consequential Changes

HKFRS 18 also amends the cash flow statement (HKAS 7):

• The indirect method reconciliation now starts from Operating Profit, not total profit
• Options for classifying interest and dividends paid/received are removed—promoting consistency

And a new framework governs aggregation and disaggregation. Vague labels like “other income” without disaggregation are no longer acceptable.

How to Prepare

Because retrospective application is required, the preparation window is now:

1. Classify every P&L line into the five new categories. Pay special attention to investing income currently buried in “other income.”
2. Identify your MPMs. Review all investor communications and press releases. Any non-IFRS metric you’ve been using publicly becomes an MPM.
3. Update your systems. Accounting systems need to tag each transaction to the appropriate category.
4. Train your people. Finance teams, auditors, and audit committees all need to understand the new classification principles.
5. Disclose now. In 2025 and 2026 financial statements, HKAS 8 requires you to disclose that HKFRS 18 has been issued but not yet applied, with a description of the expected impact.

A Note for Investment Funds

For investment entities (including Cayman SPC funds), IFRS 18 will restructure the income statement so that portfolio income—dividends, interest, fair value gains and losses—sits in the Investing category, while management fees and admin costs sit in Operating. The distinction between “operating profit” and “profit before financing and income taxes” will be visible for the first time.

If your fund publishes non-IFRS performance metrics (adjusted NAV per share, total return excluding certain fees), these may become MPMs requiring formal disclosure and reconciliation from 2027.

Start the dry-run classification now. Your administrator and auditor will thank you.

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This article is for informational purposes only and does not constitute professional accounting or legal advice.