IFRS 18: Plan now or panic later?

From that date, New Zealand business must change how they present their financial statements, including restating your comparatives. That means by 1 January 2026, you’ll need systems in place to capture and report transactions under the new rules. 

The time to start planning is now. Early action means smoother reporting, fewer surprises, and meeting your statutory deadlines with confidence. 

What’s driving the change?

The new standard is designed to provide more comparability between different entities, and gives guidance on some areas of IFRS financial reporting that, until now, have been a bit vague. The key changes from NZ IFRS 18 include:

• updated categories for the statement of profit or loss
• new mandatory subtotals in the statement of profit or loss
• introduction of management-defined performance measures, and
• additional guidance regarding aggregation and disaggregation throughout the entire financial statements.

With more consistent reporting, it’s easier to compare financial statements across entities, industries and countries. This is helpful for investors, shareholders, regulators and other users of the financial statements. 

NZ IFRS 18 will affect every single NZ IFRS reporting entity (with GAAP obligations) to some degree, whether that’s just updating the mapping, a complete system change, or something in between.

There will be some additional costs required to comply with NZ IFRS 18, and the longer you delay planning, the faster those costs will ramp up. Note, there are some exemptions for Tier 2 entities reporting under the Reduced Disclosure Regime, which are largely around management-defined performance measures. Other disclosure changes will still be mandatory.

Is your system ready for new classifications?

Under NZ IFRS 18, the statement of profit or loss will now be classified into five categories; operating, investing, financing, income taxes and discontinued operations. Some of these will be familiar from NZ IAS 1, but separating investing and financing is a significant change, and there are new definitions of what should be included in these categories. Don’t be fooled – while some of these names sound familiar to those who have experience with cash flow statements, it’s important to be aware that the definitions can be quite different. 

The new classifications are now done at a transactional level. This means if a transaction would be classified to the financing category but is currently being recorded to an account with other transactions mapping to the operating category, it will need to be separated out. And while that might not be too difficult to track for a handful of transactions, if you have hundreds or thousands of transactions going through that account, it will likely be quite a challenge. In these cases, you will need to consider if your chart of accounts and processes need to change.

If your current accounting system doesn’t provide you with the customisation options you need to categorise in line with these new categories, you may have to switch to a new system. We don’t expect this to be common, but some businesses that run legacy or in-house accounting systems might find themselves forced to upgrade. Companies facing an entire system overhaul that don’t manage to upgrade the systems this year may have no way to correctly categorise transactions throughout 2026. This could potentially result in having to use Excel and manual data entry, which brings with it many possibilities for error.

The requirement to restate your comparatives means you will need to make sure you’ve implemented these changes or at a minimum track these transactions as early as 1 January 2026 (if you have a December balance date). Going back and identifying these transactions during the audit of your first year adopting NZ IFRS 18 could be a lot of extra work and will likely cost you more.

Breaking down the ‘other’ category 

NZ IFRS 18 also requires entities to cut down on their use of ‘other’ as a catch-all term for transactions that might not fall into other classification categories. Businesses have tended to be pretty casual here – often there are millions of dollars classified to ‘other’. Under the new standard, you will need to use a materiality that makes sense to the users of the financial statements to disaggregate these items. 

On the same note, you will also need to review your financial statements as a whole to determine whether further disaggregation is required. Do these meet the new aggregation rules? You may need to look beyond your chart of accounts, rather than drilling down into individual transactions. Even if your system appears ready for these changes, we suggest you start planning early. There are further changes which we haven’t covered – you’ll need to embrace all these changes, and for larger organisations, the process could be time-consuming. 

Mandatory subtotals and management-defined performance measures

There are two new mandatory subtotal lines for your statement of profit or loss: operating profit, and profit before financing and income taxes. You’ll also need to consider management-defined performance measures (MPMs) and their relationship with the subtotals included in this statement. MPMs are measures of income and expense (a commonly seen example will be EBITDA), which are communicated publicly or to users of the financial statements outside of the financial statements themselves. Additional disclosure will be required, including the reconciliation between your MPMs and the subtotals presented in the statement of profit or loss. While these disclosures are only required for Tier 1 entities, some Tier 2 entities might also choose to disclose this.

Start working with your audit partners early

Once your accounting team has determined what needs to change, (and what doesn’t), you’ll need to work with your auditors to ensure they agree with the conclusions you’ve reached. Get them on board early, as you don’t want to end up repeating work when the time crunch is on. Our key suggestion here is to document everything. There will be many judgements (materiality is always a factor), and the auditors will want to have support for the conclusions you’ve reached.

You should also consider your governance structure — if it's complex, changes may need approval from multiple levels, even if your accounting team and auditors agree on a solution. The more people within your business that need to approve your statements, the more time you need to allocate to the process.

Start now, save time and resource

The closer we get to the new standard coming into effect, the more entities will be trying to secure the services of their accounting and audit teams. If your organisation is running behind schedule, you could find that it gets caught up in the rush. And – if you haven’t considered the transition before your audit in the year of implementation, you’ll be reclassifying comparative transactions from two years ago, asking yourself, “Why did I do that?”  As a reminder, if you miss your statutory filing deadline with the Companies Office, this can lead to late filing fees and up to a $50,000 fine for the respective company as well as each of the directors (per s207G of the Companies Act). That’s over and above the $7,000 infringement penalty the Companies Office can impose on each director for failing to file audited financial statements, and the potential audit overrun fees.

Put simply, it could easily get very expensive, very fast. NZ IFRS 18 might not apply until 2027, but that doesn’t mean you should only start worrying about it in December next year. If you start now and make a plan, you’ll minimise your time spent, costs incurred, and your stress levels over the next 18 months. What are you waiting for?