IFRS 18 and your EBITDA: why 2026 is the year to restate

IFRS 18 applies from 1 January 2027, with 2026 restated as the comparative. Operating profit moves, adjusted EBITDA becomes an audited note, and covenant definitions written today decide who carries the difference.

IFRS 18 Presentation and Disclosure in Financial Statements replaces IAS 1 for periods beginning on or after 1 January 2027. The EU endorsed it in February 2026 (Regulation (EU) 2026/338), so there is no gap between the IASB date and the EU date. The standard applies retrospectively. A December year-end group will publish its first IFRS 18 accounts in early 2028, but the 2026 figures it is closing now will be restated as the comparative, and the H1 2027 interim report will already need restated H1 2026 numbers.

The standard does not change recognition or measurement. Revenue, costs and cash are the same. What changes is where items sit in the income statement, which subtotals are mandatory, and what management must disclose about the subtotals it uses outside the accounts. For a mid-cap IFRS reporter, that is mostly an EBITDA question. Below is the checklist we now run with CFOs and lenders.

1. Operating profit is now defined, and it may not be your current number

IFRS 18 sorts income and expenses into five categories: operating, investing, financing, income taxes and discontinued operations. Two subtotals become mandatory: operating profit and profit before financing and income taxes. Operating profit is a residual: everything not classified elsewhere.

The items that most often move across the line in our files:

• Share of profit of associates and joint ventures goes to investing, below operating profit. Many groups currently show it above.
• Dividends, fair value changes and disposal gains on non-consolidated investments go to investing.
• Interest income on cash and returns on financial investments go to investing, unless investing is a main business activity.
• Interest on bank debt and on lease liabilities goes to financing, as does the unwinding of discount on other liabilities.
• Foreign exchange differences follow the category of the item that created them. FX on trade payables stays in operating; FX on a euro-denominated loan in a non-euro subsidiary goes to financing.

French issuers presenting résultat opérationnel courant should note that it is not one of the IFRS-specified subtotals. If it appears in the press release, it becomes a management-defined performance measure.

2. EBITDA itself is not defined, but one version is protected

IFRS 18 does not define EBITDA. It lists a few subtotals that are not management-defined performance measures (MPMs), including gross profit and operating profit before depreciation, amortisation and impairments within the scope of IAS 36. An EBITDA calculated exactly that way needs no special disclosure.

Any other version is an MPM if it is a subtotal of income and expenses, used in public communications outside the financial statements, and presented as management's view of the performance of the group as a whole. In practice, almost every "adjusted EBITDA" in an investor presentation or an annual report qualifies: restructuring, acquisition costs, share-based payments, IFRS 16 reversals, litigation.

3. The MPM note: adjustments become audited and public

Each MPM must be described in a single note in the financial statements, so within the auditor's opinion. For each one, the group discloses:

1. why management considers it useful and what aspect of performance it shows;
2. how it is calculated;
3. a reconciliation to the most directly comparable IFRS subtotal, showing for each reconciling item the amount per income statement line;
4. the income tax effect and the effect on non-controlling interests of each reconciling item, and how the tax effect was determined.

A change of definition must be explained and the comparative restated. The AMF flagged these requirements in its 2025 year-end recommendations (DOC-2025-08) and noted that IFRS 18 may also affect management incentive plans and bank covenants. ESMA's February 2026 statement confirms that its APM guidelines still apply outside the accounts, with the MPM note usable by reference.

An illustration on an industrial group with €210m revenue, an 80%-owned subsidiary and the French statutory rate of 25.83%:

Until now, the €1.8m restructuring and the €0.7m acquisition costs sat in an unaudited bridge in the management report. From 2027, the auditor will ask why the restructuring is excluded, whether the same type of cost was excluded last year, and why acquisition costs carry no tax effect. A "non-recurring" item that recurs every year will be visible across the restated comparative.

4. The covenant is where the money is

Most mid-cap facility agreements define EBITDA by reference to consolidated operating profit "as shown in the financial statements", then add back depreciation, amortisation and an agreed list of exceptional items. Change what operating profit contains and covenant EBITDA moves with it, while net debt does not.

Take the same group with net debt of €102m and a leverage covenant at 3.50x. Today its operating profit includes €1.5m of share of profit of an associate:

Nothing has happened to the business. The ratio crosses the threshold because of a presentation rule.

Facility agreements usually address this with one of two clauses. A frozen GAAP clause keeps covenants calculated on the accounting principles at signing, which then requires the borrower to produce a reconciliation from IFRS 18 accounts back to the old presentation every quarter. A floating GAAP clause with a negotiation obligation lets the parties agree an amendment, often against a fee and sometimes a reset of the ratio. Neither is free. The cleaner route is to write definitions that do not depend on the presentation of the income statement: list the items included in EBITDA rather than pointing at a subtotal.

The same reasoning applies to earn-outs, management package ratchets and price adjustment clauses in SPAs. An earn-out tested on 2027 EBITDA "as shown in the audited accounts" will be computed on IFRS 18 accounts, while the business plan behind it was built on IAS 1.

5. The cash flow statement moves too

The consequential amendments to IAS 7 make operating profit the single starting point for the indirect method. For most groups, interest paid and dividends paid go to financing, and interest and dividends received go to investing, with the current options removed. Covenant definitions of operating cash flow or cash conversion that rely on "net cash from operating activities" should be checked as well.

What to do before the 2026 close

• Map 2026 under both presentations. Classify every P&L line into the five categories now, on the 2026 budget and H1 actuals, so the restated comparative is ready for the H1 2027 interim report.
• Fix the MPM list. Decide which measures appear in external communications, write the definitions once, and test whether each adjustment would survive an audit question on consistency.
• Prepare the tax and NCI effects. Most groups do not track them per adjustment today. Agree the method (statutory rate, pro rata or a specific calculation) with the auditors.
• Disclose the expected impact. IAS 8 requires the 2026 accounts to explain the expected impact of a standard issued but not yet applied. Lenders and investors will read that note.
• Review every EBITDA definition you depend on. Facility agreements, SPAs, earn-outs and management packages. For new documentation signed in 2026, define EBITDA by its components and state how IFRS 18 reclassifications are treated.
• For lenders: ask borrowers for a pro forma IFRS 18 covenant calculation on 2026 figures before the first test date in 2027, rather than discovering the effect in a compliance certificate.

In due diligence on IFRS reporters, we now add a line to the quality of earnings bridge: covenant EBITDA under IAS 1, the IFRS 18 reclassifications, and the resulting headroom. It takes a day. Negotiating a waiver later takes longer.

This note is general information, not advice on a specific transaction.