Executive Summary

For years, companies have supplemented their IFRS-compliant financial statements with internally defined performance measures, figures that management believes better reflect the underlying health of the business. While these measures can offer valuable insight, the absence of a standardised framework has created a significant credibility gap in capital markets: two companies can report an ‘Adjusted EBITDA’ calculated on entirely different bases, making meaningful comparison impossible.

IFRS 18 directly addresses this gap. Announced in April 2024, the standard will replace IAS 1 and become mandatory for annual reporting periods beginning on or after 1 January 2027, with retrospective restatement of comparatives required. Its most far-reaching new requirement is the introduction of a formal category, Management Defined Performance Measures (MPMs), along with specific disclosure obligations that bring these measures into the audited financial statements for the first time.

This white paper, prepared by the Advisory Services team at J&G Group, provides finance directors, CFOs, and compliance officers with a clear, practical understanding of what constitutes an MPM, what must be disclosed, and how to begin the transition journey today.

Problem Statement: The Transparency Gap in Financial Reporting

Regulators and investors have long observed a troubling pattern: companies routinely highlight non-standard financial metrics in external communications while providing little transparency about how those metrics are calculated, adjusted, or audited. The result is a three-part problem:

• Lack of comparability, An investor comparing Adjusted EBITDA across two companies in the same sector may be comparing figures computed on fundamentally different bases, rendering peer benchmarking unreliable.
• Selective presentation, without mandatory disclosure rules, management has been free to emphasise metrics that flatter performance while omitting context that would qualify the picture.
• Limited audit oversight, because these measures fell outside the financial statements, external auditors had no formal obligation to verify their accuracy or consistency.

Analysis: Understanding MPMs Under IFRS 18

Definition and Three Qualifying Conditions

Under IFRS 18, a Management Defined Performance Measure is a subtotal of income and expenses that simultaneously meets all three of the following conditions:

• The measure is used in official communications outside the financial statements, such as press releases, management commentaries, or investor presentations. Social media posts and informal communications are explicitly excluded.: Public Communication
• The measure communicates management’s perspective on a specific aspect of the entity’s overall financial performance. IFRS 18 presumes that any measure publicly communicated outside the financial statements represents management’s view unless management explicitly rebuts this presumption.: Management’s View of Performance
• MPMs are exclusively subtotals of income and expenses, not ratios, not balance sheet items, and not non-financial metrics: Income and Expense Subtotals Only

Common Examples of MPMs

Based on the standard’s guidance, the following typically qualify as MPMs:

• Adjusted Profit or Loss, adjusted for non-recurring items such as restructuring charges.
• Adjusted EBITDA, where this differs from the IFRS 18 standard subtotal of operating profit before depreciation, amortisation, and impairments.
• Adjusted Operating Profit,  reflecting specific operational adjustments made by management.
• Adjusted Profit from Continuing Operations, excluding one-off items not expected to recur.

What Does NOT Qualify as an MPM

The following are explicitly excluded from the MPM definition:

• Subtotals comprising only income or only expenses
• Balance sheet items: assets, liabilities, and equity
• Financial ratios such as return on assets or inventory turnover
• Liquidity measures such as free cash flow
• Non-financial performance indicators, such as the number of users or customer retention rates

Before and After IFRS 18

Proposed Solution: J&G Group’s Four-Phase Readiness Framework

J&G Group has developed a structured four-phase methodology to help organisations transition to full compliance with IFRS 18 efficiently and with minimal disruption to existing reporting processes:

Data & Evidence: Illustrative Case Study

To make the disclosure requirements tangible, we walk through an illustrative example drawn directly from IFRS 18 guidance materials, the DGI Group financial statements for the year 20X4.

DGI Group, MPM Disclosures for Year 20X4

DGI Group uses two Management Defined Performance Measures: Adjusted Operating Profit and Adjusted Profit from Continuing Operations. Both reflect management’s view of underlying profitability by excluding non-recurring items not expected to recur in future periods.

The two recurring adjustment categories are:

• Impairment losses (or reversals) on property, plant, equipment, and intangible assets
• Gains or losses on the disposal of property, plant, equipment, and intangible assets

Numerical Reconciliation

Key Notes on the Reconciliation

• Tax effect: The statutory tax rate of 25% applicable to non-trading income in Ireland was applied exclusively to gains on disposal of PPE. Impairment losses attracted no tax benefit as they were ineligible for tax deductions.
• Comparative information, IFRS 18 requires presentation of comparative MPM data for prior periods, ensuring consistency and year-on-year transparency.
• Audit requirement, because MPM disclosures form part of the financial statements, they are subject to a full external audit.

Disclosure Requirements Under IFRS 18

When an entity identifies an MPM, IFRS 18 mandates four specific disclosures in the notes to the financial statements:

• A declaration that MPMs reflect management’s perspective on financial performance and may not be directly comparable to similarly labelled measures reported by other entities: Statement of Management’s View
• Clear labels and descriptions explaining what each MPM measures and why it is considered relevant by management: Descriptive Labelling
• A transparent explanation of how each MPM is computed, including identification of every income or expense adjustment applied, for example, whether impairment charges or gains on disposal of PPE are included: Calculation Methodology
• A reconciliation between each MPM and the most directly comparable IFRS subtotal or total, showing the income tax effect and the impact on non-controlling interests for each reconciling item: Numerical Reconciliation

Benefits: Why Early Compliance Is a Strategic Investment

Viewed through the right lens, IFRS 18 compliance is not a regulatory burden; it is an opportunity to build trust, improve internal discipline, and differentiate your organisation in the capital markets.

Conclusion

IFRS 18 marks a structural shift in how companies communicate financial performance to their stakeholders. After years of unregulated use of non-standard metrics, the standard establishes clear, enforceable rules that safeguard comparability and transparency across financial markets.

Entities that begin building an IFRS 18-compliant disclosure framework now, rather than scrambling in 2026, will not merely achieve regulatory compliance. They will transform that compliance into a strategic asset: one that strengthens relationships with investors, simplifies the external audit process, and positions the organisation as a benchmark for financial reporting excellence.

The transition window remains open. But it will not remain open indefinitely.