The Impact of the Mandatory Application of IFRS 18 in 2027
IFRS 18, replacing IAS 1, becomes mandatory from January 2027. Redefining operating profit and mandating MPM disclosures will widely impact listed Japanese firms.
Overhauling IAS 1: A Major Reform 8 Years in the Making
In April 2024, the International Accounting Standards Board (IASB) issued the new standard "IFRS 18 Presentation and Disclosure in Financial Statements." Replacing the traditional IAS 1, it will be mandatory for annual reporting periods beginning on or after January 1, 2027. For Japanese companies with a March year-end, the fiscal year ending March 2028 will be the first year of application.
Why was the Revision Necessary Now?
IAS 1 lacked a strict definition of "operating profit," resulting in inconsistent reporting across companies and making peer comparisons virtually impossible for years. Additionally, non-GAAP metrics (management performance measures, or MPMs) like "Adjusted EBITDA" and "Core Profit," which companies individually use in earnings presentations, suffered from opaque calculation methods and were outside the scope of audit. The IASB developed this standard over roughly eight years to address these issues.
Three Main Changes
① Reorganizing the Income Statement — Reclassified into five categories: "operating," "investing," "financing," "income taxes," and "discontinued operations." Two new subtotals, "operating profit" and "profit before financing and income taxes," are now mandatory. This will change the classification of items like interest received and share of profit of equity-method investments, causing current operating profit figures to shift for many companies.
② Mandatory Disclosure of MPMs in Notes — Unique performance measures previously published outside financial statements will be integrated into the notes and subjected to audit. Disclosure of calculation methods and reconciliation tables with IFRS subtotals is mandatory, and reasons and retrospective impacts must be disclosed if a metric is changed.
③ Strengthening Guidance on Aggregation and Disaggregation — Principles are clarified to organize notes, which tend to become overloaded with information, to be "neither too aggregated nor too disaggregated."
What is the Impact on Japanese Companies?
According to the Japan Exchange Group, as of March 2026, a total of 311 companies have adopted or decided to adopt IFRS. On a market capitalization basis, this accounts for approximately 49% of the Tokyo Stock Exchange. Beyond reclassifying income statements, the impact is wide-ranging, including reviews of management accounting systems and executive compensation metrics, as well as changes in IR communication. Domestically, World Co., Ltd. (3612) attracted attention in February 2026 by becoming the first to announce early adoption.
Summary
IFRS 18 is a institutional shift aimed at "fundamentally improving the comparability and transparency of financial performance." With less than two years until application, delays in response will directly affect IR and internal management structures. Prompt identification of the scope of impact is required.
【Reference Materials】
IASB "New IFRS Accounting Standard to Help Investors Analyse Companies' Financial Performance" (April 9, 2024) https://www.ifrs.org/content/dam/ifrs/news/2024/ifrs-18/ifrs-18-japanese-version.pdf
Accounting Standards Board of Japan (ASBJ) Press Release Translation https://www.asb-j.jp/jp/iasb_activity/press_release/y2024/2024-0409.html
Japan Exchange Group "List of Companies that Have Adopted/Decided to Adopt IFRS" https://www.jpx.co.jp/equities/improvements/ifrs/02.html