IFRS 18: the systemic revolution in financial reporting, what SAP decision-makers need to do

The starting point: a new standard, a new pressure to act

The publication of IFRS 18 is a milestone in international accounting. The standard breaks with decades of convention and introduces a uniform, conceptually coherent structure for financial reporting. This is not merely a cosmetic change in presentation, but a fundamental restructuring that affects every level of the finance function, from data entry in SAP to group reporting.

What many finance decision-makers have not yet fully grasped is the scale of the system changes required. The move to IFRS 18 is not comparable to a software update, but calls for a comprehensive redesign of charts of accounts, account mappings, reporting tools and business processes.

The new requirements of IFRS 18: three key changes

1. The new structure of the income statement (P&L)

IFRS 18 prescribes a uniform P&L structure that differs fundamentally from the previous presentation. The new structure is organised into four categories:

• Operating: All income and expenses arising from normal business activities.

• Investing: Income and expenses from investing activities, including income and expenses from associates and joint ventures accounted for using the equity method.

• Financing: All financing-related income and expenses, in particular interest and dividends paid.

• Taxes and Discontinued Operations: Income taxes and discontinued operations.

Particularly significant are the two new mandatory subtotals that IFRS 18 introduces: the operating profit/loss and the profit/loss before financing and income taxes. These subtotals are not optional, they must be reported in every set of financial statements.

2. Management-Defined Performance Measures (MPMs): a regulatory obligation instead of voluntary disclosure

IFRS 18 introduces expanded requirements for the disclosure of Management-Defined Performance Measures (MPMs). These are performance indicators such as „adjusted EBITDA”, „Adjusted Operating Income” or „Working Capital” that management communicates externally but that are not explicitly defined by IFRS.

Until now, such metrics were a matter of voluntary disclosure. IFRS 18 makes them a regulatory requirement. In future, companies must disclose these MPMs in the notes and provide a traceable reconciliation to the new IFRS subtotals. In concrete terms, this means: every MPM must be reconciled, including tax effects and effects on non-controlling interests, up to the IFRS subtotals.

This is a fundamental change. MPMs now become subject to the annual audit by external auditors and are therefore subject to the same requirements for traceability and audit reliability as the IFRS financial statements themselves.

3. Changes to the statement of cash flows (IAS 7)

IFRS 18 also affects the statement of cash flows under IAS 7. In future, interest and dividends paid must be allocated to financing activities, while interest and dividends received are to be allocated to investing activities. This eliminates previous options and leads to a unified presentation.

For determining cash flow from operating activities under the indirect method, the new operating profit or loss becomes the starting point, rather than profit before income taxes as before.

The impact on SAP FI/CO and Group Reporting: a far-reaching need for transformation

The requirements of IFRS 18 have far-reaching consequences for the SAP system landscape and for finance processes:

Account mapping and account assignment

The existing account mapping has to be revised comprehensively. Every account in the SAP system must be assigned to one of the new IFRS 18 categories. This is not trivial, especially for complex organisations with several entities and business units.

A concrete example: Expenses and income from associates accounted for using the equity method must in future be allocated to the investing category or even split out. This requires a review and adjustment of all relevant accounts in SAP.

Chart of accounts and cost centre logic

The new classification often makes it necessary to adjust the chart of accounts and the cost centre logic in the ERP system. This is particularly relevant for companies that apply the cost of sales method, as additional information must be disclosed in the notes here. This calls for more granular data capture at cost centre level.

Group mapping and Group Reporting

For the consolidated financial statements, the mapping of the local statements to the group position numbers must be revised. This is a complex undertaking, especially for groups with many subsidiaries in different countries that report under different local standards.

Reporting tools and reporting processes

The existing reporting tools, whether SAP Analytics Cloud, SAP BI or other reporting tools, must be adjusted to reflect the new P&L structures. This includes not only adapting reports, but also reviewing and adjusting the underlying data models.

Governance and audit reliability

The requirement to disclose MPMs with complete reconciliations increases the pressure on controlling and reporting. It must be ensured that the metrics used for external communication are calculated consistently and that the reconciliations can be produced in a system-supported and audit-proof manner.

The challenge of retrospective application

A critical point is the requirement for retrospective application. This means that companies must present not only the 2027 financial statements under IFRS 18, but also the 2026 comparative period. This requires the new structures and mappings to be implemented and tested in the SAP systems as early as the 2026 financial year.

This creates enormous time pressure. Companies must carry out their impact analysis now, adjust their systems now and redesign their processes now, in order to be able to provide the 2026 data in the 2027 format.

Recommended actions: a structured approach

Finance decision-makers should act now:

• First, carry out a comprehensive impact analysis: Analyse the impact of IFRS 18 on your charts of accounts, account assignments, reporting tools and business processes. This should be done in close cooperation with your SAP systems and your auditors.

• Second, establish a project governance model: Set up a project team with representatives from financial accounting, controlling, group reporting, IT and audit. Define clear roles, responsibilities and milestones.

• Third, develop a roadmap: Create a detailed roadmap for implementing the IFRS 18 requirements. This should include phases for system analysis, system adjustment, testing and piloting.

• Fourth, bring in external expertise: Consider bringing in an adviser with expertise in IFRS 18 and SAP FI/CO. The complexity of this change calls for specialist knowledge.

• Fifth, coordinate with your auditors early: Work closely with your auditors to ensure that your implementation meets the requirements of IFRS 18.

Conclusion: the time to act is now

The move to IFRS 18 is one of the biggest challenges that finance functions will face in the coming years. It calls not only for a redesign of financial reporting, but also for a far-reaching transformation of SAP systems and finance processes.

Companies that act proactively now and adjust their systems and processes systematically will not only ensure compliance, but also modernise their finance function and improve their reporting. Those who wait until 2027 is right around the corner will find themselves facing time pressure, higher costs and increased risk.

The time to act is now. CFOs and finance leaders should seize this opportunity to take their finance function to a new level.