We’ve been hearing quite a few of the same questions from Kiwi organisations, so we’ve put together the following list of the most commonly asked questions which address some of the more tricky issues you’ll face with NZ IFRS 18.
It's still a year away, so do I really need to think about this now?
Yes, if you want to minimise stress and costs. The effective date is for year-ends beginning on or after 1 January 2027, and if you leave this until late 2026, you’re going to make the job considerably more stressful. As the end of the year approaches, the work will become increasingly urgent and IFRS advisors may have to turn away work, which may result in missed audit or Companies Office filing deadlines . So be sure to bump this up your 2026 to-do list!
You will need to:
- Restate comparatives for at least one prior year. If your first NZ IFRS 18 compliant financial statements are for 31 December 2027, you’ll need to restate your 31 December 2026 comparatives in the new format.
- Consider system and chart of accounts changes. New categories and subtotals may require ERP updates, reporting templates, and chart of accounts redesign. These changes take time to implement and test, especially if you have group reporting or consolidation requirements.
- Think about governance and stakeholder impact. Will subtotals and management defined performance measure (MPM) disclosures affect KPIs, loan covenants, and investor communications? Treasury, investor relations, and audit committees need early visibility to avoid surprises.
- Align early. If you report to a parent using NZ IFRS 18, early alignment avoids dual reporting headaches. Multinationals often start transition projects 18–24 months before the effective date.
Where do I start?
Start with these four steps to begin your implementation
- Perform a gap analysis against NZ IFRS 18 to help you identify where your current reporting falls short, so you can prioritise changes that align to NZ IFRS 18.
- Update your systems and chart of accounts, and map your historical data for retrospective restatement. NZ IFRS 18 requires retrospective application, meaning prior year comparatives must be restated. If your systems and chart of accounts aren’t aligned early, you risk data integrity issues. Mapping historical data ensures you can produce restated figures efficiently and accurately when the standard becomes effective.
- Engage governance, auditors, and your group companies. A top-down approach is particularly important for determining which management defined performance measures (MPMs) are important to the business. Implementation impacts governance, investor communications, and group reporting. A top-down approach ensures alignment on which MPMs matter most to stakeholders – this prevents unnecessary delays in getting the necessary approvals for reporting purposes.
- Plan for retrospective application as comparatives will need to be restated. Restating comparatives is often underestimated in terms of effort. Planning ahead allows you to schedule resources, adjust timelines, and communicate impacts to stakeholders. It also gives you time to test your approach before NZ IFRS 18 comes into effect, reducing compliance risk.
What’s my main business activity – and what does it mean by “specified”?
Your main business activity is what drives revenue.
If you primarily invest in assets or provide financing to customers, this is referred to as a “specified main business activity.” For these companies, financing and/or investing activities will be classified into the operating category, as these activities form part of their main operations. For all other companies, these activities would be classified as financing or investing activities respectively.
What qualifies as a management-defined performance measure (MPM)?
A management defined performance measure, or MPM, is a subtotal of income and expense.
It’s not required by NZ IFRS, but it gets used in public communications outside of the financial statements. Under NZ IFRS 18, these must be disclosed, reconciled to the closest NZ IFRS subtotal, and explained. EBITDA is a good example of an MPM.
Public communications include management commentary, press releases and investor presentations, and exclude oral communications, written transcripts of oral communications, and social media posts.
It is important to note that because MPMs are now reconciled in the notes to the financial statements, they form part of the audited information. Previously, public communications containing these measures would generally not have been subject to audit.
RDR exemption
Tier 2 (RDR) reporting entities generally do not present MPMs, because they typically don’t issue public communications. However, if your RDR entity does present a subtotal of income and expenses in public communications, an exemption applies—meaning MPM disclosures are not required.
How do I handle FX gains and losses?
FX gains and losses should be presented in the same category as the items that gave rise to them; for example, gains or losses related to operating activities like trade receivables or payables would go under the operating category. If they relate to financing like borrowings, they go under financing, and investing related gains or losses go under investing.
Whatever the category, NZ IFRS 18 requires consistent classification and disclosure of judgments applied.
Can the same line item appear twice in the P&L?
Yes, as long as it’s clearly distinguished. For instance, “FX gains – operating” versus “FX gains – financing”.
What about disaggregation of expenses?
These items should be disaggregated if they differ in nature, function, or measurement basis.
NZ IFRS 18 allows entities to present operating expenses by nature, function, or both. Entities are required to select the method that provides the most useful structured summary of their expenses. If you’re presenting expenses by function:
- cost of sales must be presented separately from other expenses (if there is a cost of sales function)
- in the notes, disclose the totals of depreciation, amortisation, employee benefits, impairments, and inventory write-downs, the portion of the total relating to each item in the operating category, and the portion of the total relating to items outside of the operating category.
Will P&L categories align with cashflow?
Not necessarily.
NZ IAS 7 is being amended to align with NZ IFRS 18. However, operating, investing and financing in the profit and loss statement (P&L) don’t necessarily have the same meaning as applied in the cashflow statement.
NZ IFRS 18 will require those who use the indirect method for their operating cash flows to start from “operating profit or loss.”
Previously, in NZ IAS7, interest and dividends could be classified as either operating, investing or financing, provided it was done in a consistent manner. In NZ IAS 7, dividends paid will now be classified as cash flows from financing activities.
If your entity invests in assets or provides financing to customers, you will need to determine how to classify dividends received, interest received, and interest paid, by referring to how these are classified in the P&L.
For all other entities, interest paid will be classified as cashflows from financing activities, and interest and dividends received will be classified as cashflows from investing activities.
Get started sooner rather than later
You’ve got 12 months to get up to speed with NZ IFRS 18, and we know that you’ve probably got more urgent matters lined up in the calendar already. But this could sneak up on you and become a major pain point in the second half of the year. There’s a real risk that advisors will be incredibly busy late 2026, so starting early will reduce your stress levels and your costs. As we’ve said before, plan now, or panic later: the choice is yours.