TRW & Co · Financial reporting
IFRS 18 Presentation and Disclosure: What UAE Companies Must Change
IFRS 18 UAE companies must apply from annual periods beginning on or after 1 January 2027 replaces IAS 1 and reshapes the income statement: new operating, investing and financing categories, two mandatory subtotals and audited disclosure of adjusted measures. Comparatives are restated, so December year-end companies are already in the transition year.
Key pointIFRS 18 does not change net profit, but it can change the operating profit and EBITDA figures that drive bank covenants, earn-outs and bonuses, so the contracts need reviewing before the first IFRS 18 accounts are issued.
At a glance
Effective from 2027
IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027, with earlier application permitted, and replaces IAS 1.
Comparatives are restated
A December year-end company publishing 2027 accounts must present 2026 in the new format, so the data must be captured during 2026.
Five income categories
Operating, investing, financing, income taxes and discontinued operations, with operating profit and profit before financing and income taxes as required subtotals.
Adjusted measures audited
Management-defined performance measures used publicly must be described and reconciled in a single note, with tax and non-controlling interest effects.
Tax base unchanged
Net profit is not changed by IFRS 18, but corporate tax workpapers, return mapping and covenant definitions built on line items need updating.
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IFRS 18 UAE: the short answer
IFRS 18 UAE companies must adopt replaces IAS 1 for annual reporting periods beginning on or after 1 January 2027. It does not change how much profit a company makes, but it changes how profit is shown: every income and expense item is classified into operating, investing or financing categories (plus income taxes and discontinued operations), two new subtotals become mandatory, and "management-defined performance measures" such as adjusted EBITDA must be explained and reconciled in the notes.
Because comparatives are restated, a company with a December year-end needs its 2026 figures in the new format when it publishes its 2027 accounts. In October 2026, the transition year is already running.
This guide explains what IFRS 18 changes, who in the UAE is affected, and the knock-on effects on corporate tax computations, bank covenants and investor reporting, with an implementation checklist. The accounting and audit work is delivered with our group company A&A Consultancy; TRW & Co, as a law firm, covers the legal and regulatory side: facility agreements, investor documents, listing obligations and tax disputes.
Who in the UAE is affected
UAE law and regulation point companies to IFRS. The Commercial Companies Law requires accounts under international accounting standards, and for corporate tax Ministerial Decision No. 114 of 2023 requires IFRS, with IFRS for SMEs permitted where revenue does not exceed AED 50 million. The practical IFRS 18 UAE population therefore includes:
- listed companies on the UAE exchanges, which also publish interim reports;
- banks, finance companies and insurers regulated by the Central Bank, and firms regulated by the DFSA or FSRA;
- private companies with revenue above AED 50 million that report under full IFRS, and smaller companies that have chosen full IFRS;
- UAE subsidiaries of international groups that report under IFRS;
- DIFC and ADGM entities whose accounts are prepared under IFRS.
Companies using IFRS for SMEs are not directly affected: the IASB issued a third edition of IFRS for SMEs in 2025, effective for periods beginning on or after 1 January 2027, and it does not import IFRS 18. A company expecting to cross the AED 50 million revenue line in the next few years should plan for both changes together. Our guide to preparing IFRS financial statements in the UAE explains the frameworks.
What IFRS 18 changes
Five categories in the income statement
Every item of income and expense is classified into one of five categories: operating, investing, financing, income taxes and discontinued operations. Operating is the default category, catching everything not classified elsewhere, including volatile items and one-offs that companies sometimes present below "operating profit" today.
Investing broadly captures returns from investments held separately from the main business, such as income from associates and joint ventures accounted for by the equity method, and from cash and similar assets. Financing captures income and expenses on liabilities that are about raising finance, such as interest on borrowings, plus interest on certain other liabilities like lease liabilities and pension obligations.
Different rules for banks, insurers and investment businesses
Entities whose main business activity is providing finance to customers or investing in particular assets classify some income and expenses that would otherwise be investing or financing in the operating category. For UAE banks, finance companies, insurers and real estate investment businesses this assessment is one of the most important judgements in the project.
Two new mandatory subtotals
The standard requires operating profit and profit before financing and income taxes. Today, "operating profit" is defined differently by different UAE companies; from 2027 it will be comparable across IFRS reporters.
Management-defined performance measures
Management-defined performance measures (MPMs) are subtotals of income and expenses that a company uses in public communications outside the financial statements, such as results announcements and investor presentations, to communicate management's view of performance. Common examples are "adjusted operating profit" or "adjusted EBITDA". IFRS 18 requires them to be disclosed in a single note, with a description, an explanation of why they are useful, a reconciliation to the most directly comparable IFRS subtotal and the income tax and non-controlling interest effect of each reconciling item.
Aggregation, disaggregation and expenses by nature
New principles govern how items are grouped and split, and labels like "other expenses" need explanation if material. Companies presenting expenses by function (cost of sales, distribution, administration) must also disclose in a note specified amounts by nature, including depreciation, amortisation, employee benefits, impairment losses and inventory write-downs.
Cash flow statement
Consequential amendments to IAS 7 make operating profit the starting point for the indirect method and remove most choices on classifying interest and dividends: for entities without a specified main business activity, interest and dividends received generally go to investing, and interest and dividends paid to financing.
| Area | IAS 1 (until 2026) | IFRS 18 (from 2027) | Practical effect |
|---|---|---|---|
| Income statement structure | Limited required line items; subtotals largely at the company's discretion | Five categories and two defined subtotals | Comparable operating profit across companies |
| Adjusted measures | Not regulated within the financial statements | MPMs disclosed and reconciled in one audited note | Investor presentations and accounts must align |
| Expenses by function | Some nature disclosures required | Specified nature amounts disclosed in a note | More data needed from the ledger |
| Interest and dividends in cash flows | Classification choices available | Choices largely removed for most entities | Cash flow presentation and covenants may move |
| Grouping of items | General materiality guidance | Explicit aggregation and disaggregation principles | Fewer large "other" lines |
IFRS 18 UAE impact by sector
The effort varies widely by business model. Some IFRS 18 UAE issues are concentrated in particular sectors that dominate the local economy.
Banks and finance companies
Interest income and expense are central to the business, so the main business activity assessment drives most of the presentation. Regulatory reporting to the Central Bank and published financial statements must stay consistent, and bank analysts will compare operating profit across institutions for the first time on a common basis.
Real estate developers and investors
Groups that both develop property and hold investment property, or that hold stakes in joint ventures, must decide whether investing in particular assets is a main business activity. Fair value movements, share of results of joint ventures and interest on project finance can land in different categories depending on that answer, which affects the headline operating profit investors see.
Trading, retail and hospitality
These businesses often present expenses by function. They will need to extract depreciation, employee benefits, impairment and inventory write-down amounts by nature for the new note, and to reconsider any one-off items currently shown below operating profit.
Holding companies and family groups
Diversified family groups that hold investments alongside operating businesses face the same main business activity question at entity and consolidated level, and often have the most bespoke adjusted measures in their lender and investor reporting.
Knock-on effects: tax, covenants and investors
Corporate tax
The Corporate Tax Law starts from accounting profit in the standalone financial statements. IFRS 18 reclassifies items rather than changing net profit, so taxable income should not change simply because the standard is adopted. But the IFRS 18 UAE transition still touches tax work: return mapping and tax workpapers built on line items or subtotals need updating, interest presentation changes may affect how the interest limitation computation is documented, and the restated comparatives must be reconciled to the figures already filed for 2026. Keep a clear bridge so that an FTA reviewer can follow the numbers. Our page on corporate tax in the UAE covers the wider rules.
Bank covenants
Many UAE facility agreements define EBITDA, finance charges or operating profit by reference to the borrower's financial statements. When the presentation changes, the covenant numbers can move without any change in performance. Check whether your agreement "freezes" accounting principles at signing, requires the parties to negotiate in good faith on a change, or simply follows the latest accounts. Raise the issue with lenders before the first IFRS 18 accounts are delivered, not when a compliance certificate is due. See our pages on banking and finance and secured lending.
Investor and market reporting
Listed companies report to the Capital Market Authority and the exchanges, and their results announcements usually feature adjusted measures. Under IFRS 18 those measures, if they meet the MPM definition, move into the audited notes, so disclosure committees, investor relations and auditors must agree definitions in advance. Shareholders' agreements, earn-outs, management incentive plans and price adjustment clauses that refer to "operating profit" also need review; see our page on IPOs and listings.
Read your contracts before your accounts change. Facility agreements, earn-outs, bonus plans and shareholder agreements that refer to operating profit or EBITDA were drafted for IAS 1 presentations. Agreeing the treatment now, by amendment or side letter, is cheaper than arguing about it after the first IFRS 18 accounts are issued.
IFRS 18 UAE implementation: step by step
A typical IFRS 18 UAE project runs through seven stages. Smaller groups can combine them, but none can safely be skipped.
- Confirm scope and timing. Identify every group entity reporting under full IFRS, its year-end and its first IFRS 18 reporting period, including interim reports for listed companies.
- Map the chart of accounts. Tag each income and expense account to an IFRS 18 category and, for expenses by function, to the required natures. Decide the main business activity question for each entity.
- Inventory adjusted measures. Collect every adjusted metric used in results announcements, investor presentations and annual reports. Decide which are MPMs and agree definitions.
- Restate comparatives. Prepare the prior year in the new format, with reconciliations from the IAS 1 presentation, and agree them with the auditors early.
- Review contracts. Check facility agreements, shareholder agreements, earn-outs and incentive plans for accounting definitions, and negotiate amendments where needed.
- Update tax and MIS. Revise corporate tax workpapers, return mapping and management reporting so internal and external numbers align.
- Communicate. Explain the changes to the board, lenders and investors ahead of the first reporting date.
Illustrative scenario
This scenario is illustrative and does not describe a real client.
A Dubai-based hospitality group with a December year-end reports under full IFRS. Its facility agreement sets a leverage covenant based on EBITDA "as shown in the most recent financial statements". The group currently presents foreign exchange losses on borrowings and certain one-off costs below its own "operating profit" line, and its investor presentation highlights an adjusted EBITDA.
Under IFRS 18 the one-off costs move into the operating category, foreign exchange differences are classified by reference to the item that gave rise to them, and the adjusted EBITDA becomes an MPM with a reconciliation in the notes. The group's reported operating profit falls, although net profit is unchanged. Because the facility follows the latest accounts, the covenant headroom shrinks. Raising this with the lenders during 2026, the group agrees a side letter fixing the covenant definition to the existing method, updates its corporate tax workpapers and aligns the investor presentation with the new note.
Risks and common mistakes
Treating IFRS 18 as a 2027 problem
Because comparatives must be restated, a December year-end company needs 2026 data in the new format. Listed companies also need the new structure in interim reports during the first year. Companies that wait until 2027 find that the data to classify 2026 transactions by category and nature was never captured, and the restatement becomes a manual exercise under audit pressure.
Ignoring adjusted measures outside the accounts
MPMs are defined by reference to public communications, not just the annual report. If investor relations uses a measure in results presentations that finance has not reviewed, it may have to be disclosed and reconciled in the audited notes. Build a single list of adjusted measures and a governance process for adding new ones.
Missing contractual definitions
Facility agreements, earn-outs, management incentive plans and shareholder agreements often define financial measures by reference to the accounts. A presentation change can move a covenant, a bonus or a purchase price. Review every contract that references operating profit, EBITDA or finance costs, and agree any amendments before the first reporting date.
Assuming no tax consequence
Net profit may be unchanged, but tax workpapers, return mapping and interest limitation documentation are often built on line items. Restated comparatives must be reconciled to returns already filed. An unclear bridge invites FTA questions; see our guide to audited financial statements for corporate tax.
Groups and cross-border reporting
For UAE subsidiaries of foreign groups, the parent's IFRS 18 project usually sets the timetable and the classification policies. The UAE entity still has to produce standalone statements for corporate tax and, often, for its free zone authority or regulator. Make sure group policies on categories and MPMs work at entity level, and that the UAE statements are not simply an extract of the group pack. Groups headquartered in jurisdictions that apply other frameworks, or that endorse IFRS with a delay, may face timing differences between parent and UAE reporting; agree the approach early with the group auditor.
What to do now
As of October 2026, an IFRS 18 UAE project should already be mapping accounts and restating 2026 comparatives. The minimum next steps:
- Confirm which entities are in scope and their first reporting dates.
- Complete the category and nature mapping in the ledger.
- Decide the main business activity question for finance, insurance and investment entities.
- List and define all adjusted measures; decide which are MPMs.
- Review financing, investor and incentive contracts that use accounting definitions.
- Update corporate tax workpapers and the monthly MIS reporting pack.
- Brief the board, auditors, lenders and investors.
The IASB's IFRS 18 page sets out the standard and supporting material. The accounting conversion is delivered with A&A Consultancy; for facility amendments, investor documents and tax questions arising from the IFRS 18 UAE transition, contact TRW & Co at info@trw.co or +971 58 942 1012.
Frequently asked questions
01When does IFRS 18 apply in the UAE?
IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. UAE companies reporting under full IFRS, including listed companies, regulated financial institutions and private companies above the IFRS for SMEs threshold, will apply it from that date. Because the standard requires comparative information to be restated, a company with a December year-end must present its 2026 figures in the IFRS 18 format in its 2027 financial statements.
02Does IFRS 18 apply to companies using IFRS for SMEs?
No. IFRS 18 amends full IFRS. Companies using IFRS for SMEs, which corporate tax rules permit where revenue does not exceed AED 50 million, follow that standard instead. The IASB issued a third edition of IFRS for SMEs in 2025, effective for periods beginning on or after 1 January 2027, which brings its own changes. A company expecting to exceed the threshold and move to full IFRS should plan for IFRS 18 as part of that move.
03Will IFRS 18 change my corporate tax liability?
Not directly. IFRS 18 changes presentation and disclosure, not recognition or measurement, so net profit, the starting point for corporate tax, should be unchanged. However, tax workpapers and return mapping that rely on income statement line items or subtotals need updating, and interest presentation changes may affect how the interest limitation calculation is documented. Restated comparatives should be reconciled to the 2026 return so the Federal Tax Authority can follow the figures.
04What is a management-defined performance measure?
It is a subtotal of income and expenses that a company uses in public communications outside the financial statements, such as investor presentations or results announcements, to communicate management's view of financial performance, and that is not a subtotal specified by IFRS. Adjusted operating profit is a typical example. IFRS 18 requires these measures to be disclosed in one note with an explanation, a reconciliation to the most comparable IFRS subtotal and the tax and non-controlling interest effects.
05Do bank covenants need to change because of IFRS 18?
They may. Many facility agreements define EBITDA, operating profit or finance charges by reference to the financial statements. If the definition follows the latest accounts, IFRS 18 can move covenant figures without any change in performance. Some agreements freeze accounting principles at signing or require good-faith negotiation on accounting changes. Review the wording during 2026 and agree any amendment or side letter with lenders before the first IFRS 18 accounts are delivered.
06What changes in the cash flow statement under IFRS 18?
Consequential amendments to IAS 7 make operating profit the starting point for the indirect method of reporting operating cash flows and remove most of the existing choices for classifying interest and dividends. For entities without a specified main business activity, interest and dividends received are generally classified as investing, and interest and dividends paid as financing. Banks and other entities with a specified main business activity follow different rules.
Sources and official materials
- IFRS 18 Presentation and Disclosure in Financial Statements — Standard, effective date and supporting material
- IASB: third edition of the IFRS for SMEs Accounting Standard — Effective date of the SME standard update
- Ministry of Finance: Corporate Tax — Corporate Tax Law and Ministerial Decision No. 114 of 2023
- Federal Decree-Law No. 32 of 2021 on Commercial Companies — Accounting and financial statement duties
- Capital Market Authority — Periodic reporting by listed companies
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
