IFRS 18, Presentation and Disclosure in Financial Statements, will apply to annual reporting periods beginning on or after 1 January 2027. The Standard primarily changes the way companies present and disclose financial performance rather than how income and expenses are recognized or measured. Key changes include defined operating, investing and financing categories, new required profit subtotals, disclosures relating to management-defined performance measures (MPMs), and enhanced requirements for the aggregation and disaggregation of financial information.
For most businesses, IFRS 18 will not change accounting profit, retained earnings, current tax or taxable income. Reclassifying an income or expense item between presentation categories does not necessarily change its underlying measurement or the company’s overall profit. However, businesses will need to make operational changes, including updating reporting processes, mapping general ledger accounts, reviewing accounting policies, documenting significant classification judgements and preparing comparative information in accordance with the new requirements.
Kenyan tax perspective
From a Kenyan tax perspective, IFRS 18 does not change the applicable tax legislation. Taxable income, allowable deductions, VAT, withholding tax and other statutory tax obligations will continue to be determined based on the relevant tax laws and the nature of the underlying transactions. Classification of an item as operating, investing or financing for IFRS purposes does not, itself, determine whether that item is taxable, deductible or subject to a particular tax treatment. Businesses should therefore maintain a clear distinction between financial reporting classifications and tax classifications, supported by appropriate reconciliation processes.
One of the key areas requiring attention is the potential impact on systems and data mapping. Where tax computations, reporting tools or tax interfaces rely on existing general ledger accounts or financial statement classifications, changes arising from IFRS 18 could unintentionally affect tax calculations. Businesses should therefore review their ERP systems, tax interfaces, reporting structures, tax provision models and reconciliation controls to ensure that changes to financial reporting do not result in unintended tax errors.
IFRS 18 may also have implications for management reporting, key performance indicators and financial covenants. Companies will need to distinguish the new IFRS-defined operating profit subtotal from management measures such as adjusted EBITDA and adjusted operating profit. In addition, loan agreements and other contractual arrangements should be reviewed where terms such as “operating profit” are used without a clearly defined basis, as the introduction of IFRS 18 could affect their interpretation or calculation.
IFRS 18 readiness activities
Businesses should begin their IFRS 18 readiness activities well ahead of the effective date. This should include assessing the potential impact on the financial statements, mapping general ledger accounts and reporting data, testing the new presentation using 2026 financial information, preparing comparative information, updating systems and internal controls, and training finance, tax, IT and management teams.
For Kenyan businesses, the central message is that IFRS 18 is primarily a financial reporting and disclosure reform, not a change to the tax regime. Nevertheless, its implementation could have indirect consequences for financial reporting systems, tax reconciliations, management KPIs, financial covenants and internal controls. Ndakala Advisory LLP can support businesses with IFRS 18 impact assessments, general ledger and accounting mapping, tax reconciliation reviews, systems and control assessments, management-defined performance measures, implementation support and staff training.
