IFRS 18 Is Replacing IAS 1 — What UAE Companies Need to Change Before 2027

For as long as most finance teams can remember, the shape of an income statement has been governed by IAS 1 — a standard flexible enough that two competing companies could present “operating profit” and mean two different things. That era is ending. IFRS 18, issued by the International Accounting Standards Board in April 2024, replaces IAS 1 for annual reporting periods beginning on or after 1 January 2027, and it standardises the structure of the profit and loss statement for every full-IFRS reporter in the world.

UAE companies are squarely in scope. Ministerial Decision No. 114 of 2023 makes IFRS the accounting basis for corporate tax, and a growing share of UAE businesses now need audited IFRS financial statements. This guide explains what IFRS 18 actually changes, who in the UAE it touches, and what to do about it before the first 2027 close.

What IFRS 18 is — and what it is not

IFRS 18 Presentation and Disclosure in Financial Statements is the outcome of the IASB’s Primary Financial Statements project. It replaces IAS 1, carries forward many of its requirements, and moves some others into IAS 8 and IFRS 7. Three changes do the heavy lifting:

1. A defined income statement structure. Income and expenses are classified into five categories — operating, investing, financing, income taxes and discontinued operations — and two new subtotals become mandatory: operating profit and profit before financing and income taxes. The three that change day-to-day behaviour for a UAE trading or services company are operating, investing and financing, which is why they get most of the attention below.
2. Management-defined performance measures (MPMs). Company-specific measures used in public communications — adjusted EBITDA, adjusted operating profit and their cousins — must be disclosed in the notes and reconciled to the nearest IFRS subtotal.
3. Aggregation and disaggregation principles. New guidance on when items must be split out and when they may be grouped, aimed at ending both the ten-line income statement that hides everything and the two-hundred-line one that drowns it.

Just as important is what IFRS 18 does not do: it changes presentation and disclosure only. Nothing about the recognition or measurement of income and expenses moves, so the bottom line is the same number it would have been under IAS 1. What changes is where everything sits — and which subtotals the world gets to compare across companies.

The three categories, in practice

The operating category is the default home for the results of a company’s main business activities. The investing category takes results from investments in associates, joint ventures and other standalone-return assets. The financing category takes items related to how the business is funded — interest on borrowings and similar liabilities.

For a typical UAE SME — a trading, contracting or services company — most of the P&L lands in operating, and the visible change is that interest expense and certain investment returns can no longer blur into operating results. Decisions that were previously judgement calls (where does FX go? where does interest income on surplus cash sit?) now follow the standard’s classification rules, with specific requirements for entities like banks whose main business is financing or investing.

That reclassification is precisely why the standard has teeth. A company that has been quietly presenting “operating profit” after netting interest income into it may find its headline subtotal falls under IFRS 18 — same total profit, different story above the line.

Five categories, and what falls into each

The IASB’s own effects analysis for IFRS 18 sets the classification out explicitly. It is worth having the whole table rather than the three-category shorthand, because the two categories people skip are the ones that decide where a UAE group’s tax charge and its discontinued operations sit.

Source: Effects Analysis — IFRS 18, IFRS Foundation, April 2024, section 2.2.

Two lines matter more than they look. Liabilities that “involve only the raising of finance” are debentures, loans, notes, bonds and mortgages — a UAE company’s term loan or working capital facility. Liabilities that do not involve only the raising of finance are payables for goods or services, lease liabilities and defined benefit pension liabilities — which for a UAE employer includes the end-of-service benefit provision. The interest element on those goes to financing; the rest does not.

The IASB is also explicit that operating profit is not what most finance directors assume: it “is not a measure of ‘persistent’ or ‘recurring’ operating performance”, and the operating category “comprises all income and expenses arising from a company’s operations, regardless of whether they are volatile or unusual in some way”. A one-off Dubai property impairment or a redundancy cost sits in operating profit under IFRS 18. If your lender’s covenant reads “operating profit” and assumed a normalised figure, that covenant is about to mean something different.

The exception for banks, insurers and property companies

IFRS 18 carves out companies with specified main business activities, and the carve-out reaches a large slice of the UAE market — banks, insurers, investment entities and investment property companies are all named categories.

For a Dubai or Abu Dhabi real-estate group that holds investment property as its main business, this is the difference between rental income and fair value movements sitting above or below operating profit — and, because that group is almost certainly a full-IFRS reporter with audited accounts, it is a 2027 question, not a theoretical one.

[[chart:ifrs18-timeline]]

The comparatives trap: 2026 is already an IFRS 18 year

IFRS 18 is applied retrospectively. A calendar-year company adopting on 1 January 2027 must present its 2026 comparatives restated under the new structure. In other words, the financial year most UAE companies are planning right now will eventually be shown to banks, auditors and the FTA in IFRS 18 format — whether or not anyone in the building has read the standard yet.

That is the practical reason to move early. The work itself is mostly mapping: every line in the chart of accounts assigned to a category, the new subtotals tested against last year’s numbers, and any surprises — a covenant that references operating profit, a bonus scheme keyed to EBITDA, a management reporting pack built on the old layout — surfaced while there is still time to renegotiate or re-anchor them.

Who in the UAE this actually touches

The UAE connection runs through two Ministerial Decisions.

The accounting basis. Under Ministerial Decision No. 114 of 2023, the only accounting standards accepted for UAE corporate tax are IFRS and IFRS for SMEs — the latter available where revenue does not exceed AED 50 million, with a cash basis option where revenue does not exceed AED 3 million. Corporate tax starts from accounting income, a mechanic we unpacked in our guide to the financial statements requirements for corporate tax and in cash versus accrual accounting.

The audit mandate. Ministerial Decision No. 84 of 2025 — which replaced the 2023 decision for tax periods starting on or after 1 January 2025 — requires audited financial statements for taxable persons with revenue above AED 50 million and for every Qualifying Free Zone Person, and requires tax groups to prepare audited special purpose financial statements. If you are in any of those buckets, your audited statements must comply with whichever IFRS standards are in force — which from 2027 means IFRS 18.

Our guides to statutory audit requirements in the UAE and free zone audit obligations cover who must be audited in detail.

Put together, the population splits three ways:

• Full-IFRS reporters — larger SMEs, groups, QFZPs and anyone whose bank or investors demand full IFRS — adopt IFRS 18 for periods beginning on or after 1 January 2027.
• IFRS for SMEs reporters (revenue up to AED 50 million) follow that separate standard, which has its own presentation requirements. IFRS 18 does not apply to them directly — though lenders used to IFRS 18-style statements may start asking for the new subtotals anyway.
• Cash-basis micro businesses (revenue up to AED 3 million) are furthest from the blast radius, but grow past the threshold and the ladder above applies.

[[chart:ifrs18-uae-thresholds]]

The MPM rule: your “adjusted” numbers go on the record

The disclosure with the sharpest edge is the management-defined performance measures note. If a company publicly communicates a performance subtotal that IFRS does not define — an adjusted EBITDA in an investor deck, an “underlying operating profit” in a lender presentation — IFRS 18 requires it to be disclosed in the financial statements, explained, and reconciled line-by-line to the most comparable IFRS subtotal.

For UAE businesses raising money or refinancing, this cuts both ways. It adds discipline — the adjusted figure now lives next to its reconciliation, audited. It also adds credibility: a clean MPM note is a better fundraising exhibit than a spreadsheet nobody can tie to the accounts. Companies preparing for a raise or exit should treat the MPM note as part of the equity story, not a compliance afterthought — the same logic that applies to the rest of the data room.

The MPM note, in the standard’s own terms

The page above describes management-defined performance measures loosely. The standard defines them tightly, and the definition is a three-part test. An MPM is a subtotal of income and expenses that is used in public communications outside the financial statements, communicates management’s view of an aspect of the financial performance of the company as a whole, and is not listed in IFRS 18 or specifically required by IFRS Accounting Standards.

“Public communications” is drawn to include management commentary, press releases and investor presentations, and explicitly not to include oral communications, written transcripts of them, or social media posts. IFRS 18 then presumes that any subtotal used in public communications communicates management’s view; a company may rebut that presumption only with reasonable and supportable information.

The disclosure itself sits in a single note and, for each MPM, must carry a description of the aspect of performance it communicates and why management believes it useful; a description of how it is calculated; a reconciliation to the most directly comparable IFRS-listed subtotal including the income tax effect and the effect on non-controlling interests for each reconciling item; and a description of how the tax effect was determined. The IASB notes that for many companies, disclosing the tax effect line by line rather than in aggregate will be new work.

Expenses by nature: the five disclosures that catch function reporters

IFRS 18 requires operating expenses to be classified and presented by nature, by function, or by a mix — whichever “provides the most useful structured summary”. Where a company presents any operating expense line by function, it must then disclose five specified expenses by nature for each of those lines.

Most UAE trading companies present cost of sales, selling expenses and administrative expenses — all functional lines. Under IFRS 18 each of those five natures has to be split out against them in the notes. That is a chart-of-accounts problem long before it is a disclosure problem: if depreciation is buried inside cost of sales in a single ledger account, nobody can produce the split without a manual analysis every period.

What changes in the statement of cash flows

IFRS 18 came with consequential amendments to IAS 7, and they are the part UAE finance teams most often miss because the standard’s name mentions presentation rather than cash flow.

The IASB also warns against an assumption that costs UAE groups time in the first year: the operating, investing and financing categories in the statement of profit or loss and the ones in the statement of cash flows “have different meanings”, and the IASB deliberately did not seek alignment between them. Two things with the same name, doing different jobs, in the same set of accounts.

Which UAE companies are actually in scope — the two decisions that decide it

The accounting basis is set by Ministerial Decision No. 114 of 2023, and it is short enough to quote. Article 4(1): “a Taxable Person shall apply the International Financial Reporting Standards (‘IFRS’).” Article 4(2): a taxable person “deriving Revenue that does not exceed AED 50,000,000… may apply International Financial Reporting Standards for small and medium-sized entities”. Article 2 allows the cash basis where revenue does not exceed AED 3,000,000, or in exceptional circumstances on application to the FTA.

The audit requirement is set by Ministerial Decision No. 84 of 2025, which applies to tax periods commencing on or after 1 January 2025 and repealed Ministerial Decision No. 82 of 2023 (which continues to apply to earlier periods). Article 2(1) requires audited financial statements from a taxable person that is not a tax group and derives revenue “exceeding AED 50,000,000” in the relevant tax period, and from a Qualifying Free Zone Person — at any revenue level. Article 2(2) requires a tax group to prepare audited special purpose financial statements.

Two consequences follow that catch people out. First, a small free zone company in Dubai, Sharjah or Ras Al Khaimah with AED 8 million of revenue is inside the audited-accounts population purely because it is a QFZP — MD 84/2025 attaches no revenue threshold to that limb. Second, MD 114/2023 Article 4(2) is permissive, not automatic: a company under AED 50 million may apply IFRS for SMEs. If it has not made and documented that election, and its auditor signs a full-IFRS opinion, IFRS 18 applies to it in 2027.

The UAE compliance calendar IFRS 18 lands on

Nothing about IFRS 18 changes a filing date. It changes what the filed statements look like, and those statements feed a calendar that is already fixed by statute.

The date that actually bites is Article 57. Because the tax period is the twelve-month period for which the company prepares financial statements, a calendar-year UAE company adopting IFRS 18 on 1 January 2027 files a corporate tax return for that period by 30 September 2028 — built on restated 2026 comparatives it has to have prepared during 2027. The audit, the return and the restatement all land in the same window. Doing the mapping in 2026 is not early; it is the only version of the timetable that is not compressed.

There is a second-order effect worth naming for group finance teams in Dubai and Abu Dhabi. Article 55(3) gives you thirty days to hand a local file to the FTA, and a local file describes the UAE entity’s related-party transactions against its financial results. Restate the comparatives under IFRS 18 and the operating profit those transactions were benchmarked against moves, even though total profit does not. A transfer pricing file built on an operating margin defined the IAS 1 way should be re-read against the IFRS 18 definition before it is handed over — the number in the benchmarking study and the number in the restated accounts need to be the same number.

What a UAE SME should actually do in 2026

The preparation list is short and unheroic:

• Map the chart of accounts to operating, investing and financing categories, and test-run the two new subtotals on the latest full year.
• Decide the judgement lines early — FX differences, interest income on deposits, results from any associates — and document the classification rationale for the auditor.
• Sweep the covenants and KPIs. Any loan agreement, bonus plan or shareholder agreement that references operating profit or EBITDA needs re-reading against the new definitions.
• Fix the reporting stack. Accounting systems and consolidation templates need the new structure; management packs are easiest to migrate at the same time so internal and statutory numbers keep speaking the same language.
• Brief the board once, early. The 2027 statements will look different from 2026’s published shape even though profit is unchanged — better that surprise lands in a planning meeting than at the audit clearance meeting.

This is also a natural moment to tidy adjacent presentation debt. Companies that adopted IFRS 16 for leases in a hurry, or that carry inconsistent classification between management and statutory accounts, can fold those clean-ups into the same mapping exercise.

Where this leaves you

IFRS 18 is the biggest change to the shape of financial statements in decades, but for a well-run UAE company it is a project measured in weeks, not months — provided it happens in 2026 and not mid-audit in 2028. The profit number will not move; the credibility of the statements that carry it will.

Our accounting and bookkeeping team maps charts of accounts to the IFRS 18 structure and rebuilds reporting packs to match, our audit assistance team prepares the schedules and classification memos your auditor will ask for, and our CFO advisory team handles the covenant and KPI sweep. Preparing full-IFRS statements and not sure what 2027 does to them? Get a quote and we will scope the transition for your business.

Disclaimer: This article is published by Velmont Crest, a DED-licensed UAE accounting firm. We are not a tax agent, an FTA-registered representative, or a licensed audit or legal services firm. The content above is general information about IFRS 18 and its UAE context and does not constitute accounting, audit, tax, legal or financial advice. How the standard applies to any specific entity depends on its facts, its reporting framework and the applicable legislation, Ministerial Decisions and Federal Tax Authority guidance — take advice on your own position.

References

• IFRS 18 Presentation and Disclosure in Financial Statements — IFRS Foundation
• Ministerial Decision No. 114 of 2023 on the Accounting Standards and Methods — UAE Ministry of Finance
• Ministerial Decision No. 84 of 2025 on Audited Financial Statements — UAE Ministry of Finance