IFRS 18: The systemic revolution in financial reporting – Action required for SAP decision-makers

In April 2024, the International Accounting Standards Board (IASB) published the new standard IFRS 18 “Presentation and Disclosure in Financial Statements.” From January 1, 2027, this standard will replace the previous IAS 1 and require mandatory retrospective application to the comparative period. For CFOs, heads of finance, and controlling, this means not only a redesign of financial reporting, but also a profound technical transformation in SAP FI/CO and group reporting. The time to act is now – not in 2027.

The starting point: a new standard, a new urgency 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 just a cosmetic change in presentation, but a fundamental restructuring that affects all levels of the finance function – from data entry in SAP to group reporting.

What many financial decision-makers have not yet fully grasped is the extent of the system adjustments that are required. The transition to IFRS 18 is not comparable to a software update, but requires a comprehensive redesign of charts of accounts, account assignments, reporting tools, and business processes.Die neuen Anforderungen des IFRS 18: Drei zentrale Veränderungen

The new requirements of IFRS 18: Three key changes

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

IFRS 18 prescribes a uniform income statement structure that differs fundamentally from the previous presentation. The new structure is divided 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 introduced by IFRS 18: operating profit/loss and profit/loss before financing and income taxes. These subtotals are not optional—they must be disclosed in every financial statement.

2. Management-Defined Performance Measures (MPMs): 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 are not explicitly defined by IFRS.

Until now, such indicators were a matter of voluntary disclosure. IFRS 18 makes them a regulatory requirement. In the future, companies must disclose these MPMs in the notes and provide a comprehensible reconciliation to the new IFRS subtotals. Specifically, this means that each MPM must be reconciled with tax effects and effects on non-controlling interests up to the IFRS subtotals.

This is a fundamental change. MPMs will now be subject to annual audits by external auditors and will therefore be subject to the same requirements for traceability and auditability as the IFRS financial statements themselves.

3. Changes in the cash flow statement (IAS 7)

IFRS 18 also affects the cash flow statement in accordance with IAS 7. In future, interest and dividends paid must be allocated to financing activities, while interest and dividends received must be allocated to investing activities. This eliminates previous options and leads to a standardized presentation.

To determine cash flow from operating activities using the indirect method, the new operating profit or loss becomes the starting point—no longer, as was previously the case, the result before income taxes.

The impact on SAP FI/CO and group reporting: A profound need for transformation

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

Account mapping and account assignment

The existing account mapping must be comprehensively revised. Each account in the SAP system must be assigned to one of the new IFRS 18 categories. This is no trivial task, especially for complex organizations with multiple companies and business areas.

A concrete example: Expenses and income from associated companies that are accounted for using the equity method must in future be allocated to the investments category or even split up. This requires all relevant accounts in SAP to be reviewed and adjusted.

Chart of accounts and cost center logic

The new classification often requires adjustments to the chart of accounts and cost center logic in the ERP system. This is particularly relevant for companies that use the cost of sales method, as additional information must be disclosed in the notes. This requires more granular data collection at the cost center level.

Group mapping and group reporting

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

Reporting tools and reporting processes

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

Governance and audit compliance

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

The challenge of retrospective application

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

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

Recommended actions: A structured approach

Financial decision-makers should act immediately:

• • First, conduct a comprehensive impact analysis: Analyze the impact of IFRS 18 on your charts of accounts, account mappings, reporting tools, and business processes. This should be done in close collaboration 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 auditing. 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 adaptation, testing, and piloting.

  • Fourth, bring in external expertise: Consider bringing in a consultant with expertise in IFRS 18 and SAP FI/CO. The complexity of this change requires specialized knowledge.

  • Fifth, coordinate with your auditors early on: Work closely with your auditors to ensure that your implementation complies with IFRS 18 requirements.

Conclusion: The time to act is now

The transition to IFRS 18 is one of the biggest challenges facing finance functions in the coming years. It requires not only a redesign of financial reporting, but also a profound transformation of SAP systems and financial processes.

Companies that act proactively now and systematically adapt their systems and processes will not only ensure compliance, but also modernize their finance function and improve their reporting. Those who wait until 2027 is just around the corner will face 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 the next level.