MFRS 18 Is Coming: What Malaysian Companies Need to Know Before 2027

Accounting standard

On 14 June 2024, the Malaysian Accounting Standards Board (MASB) issued MFRS 18 Presentation and Disclosure in Financial Statements, Malaysia's fully converged version of IFRS 18 issued by the International Accounting Standards Board (IASB). MFRS 18 will replace MFRS 101 Presentation of Financial Statements and becomes effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted (source: MASB press release, 14 June 2024).

For most Malaysian companies, 2027 may feel some way off. In practice, MFRS 18 requires retrospective application and a reconciliation of the prior year's statement of profit or loss to the new presentation, which means the comparative period data affected by the standard begins as early as the 2026 financial year for calendar-year entities. Companies that start reviewing their income statement structure, chart of accounts, and reporting systems now will have a more orderly transition than those who leave it until the effective date approaches.

This article summarises what MFRS 18 confirms, based on MASB's official issuance, and sets out practical preparation steps for Malaysian companies reporting under the MFRS framework.

Who MFRS 18 affects, and when

MFRS 18 applies to all entities preparing financial statements under the Malaysian Financial Reporting Standards (MFRS) framework — broadly, Malaysian public interest entities and other entities that apply full MFRS rather than the Malaysian Private Entities Reporting Standard (MPERS). Entities reporting under MPERS are not directly affected by MFRS 18, as MPERS is a separate framework maintained by MASB.

Confirmed effective date: annual reporting periods beginning on or after 1 January 2027. Earlier application is permitted. For a company with a 31 December year end, this means the first financial statements prepared under MFRS 18 will cover the year ending 31 December 2027, with the 2026 comparative year restated onto the new presentation basis.

MFRS 18 does not change how profit or loss is measured, and it does not introduce new recognition or measurement requirements. It changes how income and expenses are presented and disclosed in the financial statements. Total profit or loss for the period remains the same; what changes is the structure investors and other users see on the face of the statement of profit or loss and in the accompanying notes.

Three new categories in the statement of profit or loss

MFRS 18 introduces a structured statement of profit or loss built around five categories: operating, investing, financing, income taxes, and discontinued operations. The income taxes and discontinued operations categories broadly continue existing presentation practice. The operating, investing, and financing categories are the substantive change.

  • Operating category — this is the residual category. Unless an item of income or expense is required to be classified elsewhere, it is classified as operating. For most companies, this will capture revenue, cost of sales, and the bulk of administrative and selling expenses — broadly, income and expenses arising from the entity's main business activities.
  • Investing category — income and expenses from investments that generate a return largely independently of the entity's other operating resources, such as interest income, dividend income, and gains or losses on investments not held as part of the entity's main operating activities.
  • Financing category — income and expenses relating to liabilities that arise solely from raising finance, such as interest expense on borrowings. MFRS 18 draws a distinction between financing-related liabilities and other liabilities that happen to include a financing component, which will require judgement for some arrangements.

Entities whose main business activities involve investing in assets or providing financing to customers (for example, banks and other financial institutions) apply specific classification requirements that differ from the general approach — a further reason why the classification exercise is not simply mechanical and needs to be worked through against each entity's own facts.

MFRS 18 also introduces two new mandatory subtotals on the face of the statement of profit or loss: operating profit and profit before financing and income tax. These subtotals are intended to improve comparability between entities that currently present their income statements in widely different ways.

A further change worth noting: foreign exchange differences must be classified in the same category as the underlying item that gave rise to them, rather than being grouped separately by default.

Management-defined performance measures (MPMs)

Many Malaysian companies already report adjusted metrics — adjusted profit, adjusted EBITDA, or similar — in results announcements, investor presentations, or annual report commentary, sitting outside the audited financial statements. MFRS 18 introduces the concept of a management-defined performance measure (MPM) to bring a defined subset of these measures into the financial statements themselves, with disclosure and audit implications.

An MPM is a subtotal of income and expenses that management uses in public communications outside the financial statements to convey its view of an aspect of the entity's financial performance, and that is not specifically required or defined by MFRS Accounting Standards. Where an MPM meets this definition, MFRS 18 requires the entity to disclose, in a single note to the financial statements:

  • a description of the aspect of financial performance the MPM is intended to communicate;
  • an explanation of why the MPM provides useful information to users;
  • a reconciliation between the MPM and the most directly comparable subtotal specified by MFRS Accounting Standards, including the related income tax effect and the effect on non-controlling interests; and
  • how the MPM was calculated, if this is not otherwise clear.

Because MPM disclosures sit within the financial statements, they fall within the scope of audit procedures — a materially different position from adjusted metrics disclosed only in an unaudited investor presentation or press release. Companies that currently rely on adjusted measures in external communications should identify, ahead of the effective date, which of those measures are likely to meet the MPM definition.

Subtotals of assets or liabilities, and measures of cash flow, are outside the scope of the MPM definition, even where they are also used in external communications.

Aggregation and disaggregation: a new discipline for "other" line items

MFRS 18 sets out enhanced principles for aggregation and disaggregation that apply across the primary financial statements and notes, not only the statement of profit or loss. The underlying principle is that items with similar characteristics may be aggregated, while items with dissimilar characteristics — or items whose combination would obscure material information — must be disaggregated and presented or disclosed separately.

A practical consequence is closer scrutiny of generic "other income" or "other operating expenses" lines. Where such a line item is material, MFRS 18's aggregation and disaggregation principles will generally require the underlying components to be broken down, either on the face of the statement or in the notes, rather than left as an undifferentiated total.

MFRS 18 also permits entities to present operating expenses by nature, by function, or using a mixed approach, with additional guidance to help entities select the presentation that best reflects how the business is managed. Where expenses such as depreciation and impairment of non-financial assets are presented by function, MFRS 18 requires additional by-nature information for those expenses to be disclosed in a single note.

What MFRS 18 does not change

It is worth being precise about the boundaries of this standard, given how much commentary has focused on the income statement changes:

  • MFRS 18 does not change the recognition or measurement of income, expenses, assets, or liabilities. Net profit or loss for the period is unaffected.
  • Changes to the statement of financial position, statement of changes in equity, and statement of comprehensive income are limited.
  • Some presentation requirements move from MFRS 101 to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors (for example, aspects of the compliance statement), rather than being removed.
  • There are related but limited amendments to MFRS 107 Statement of Cash Flows, principally affecting the starting point used for the indirect method of the operating cash flow section.
  • Entities reporting under MPERS rather than full MFRS are not directly affected, as MFRS 18 forms part of the MFRS framework.

Where a source or commentary describes an area of MFRS 18 as still under discussion at the IASB or MASB level, that should be treated as unsettled until confirmed — this article reflects the standard as issued by MASB on 14 June 2024 and does not speculate on any subsequent narrow-scope amendments.

Practical preparation steps for a Malaysian company

With an effective date of 1 January 2027 and a comparative period that will need to be restated, MASB and the IASB have both encouraged early preparation. Steps a Malaysian company reporting under MFRS can reasonably take now include:

  1. Map current income statement line items to the new categories. Work through existing revenue, cost, and other income and expense lines against the operating, investing, and financing definitions to identify where classification will change and where judgement will be required.
  2. Identify existing adjusted or non-MFRS measures used externally. Review investor presentations, results announcements, and annual report commentary for measures such as adjusted profit or adjusted EBITDA, and assess which are likely to meet the MPM definition and therefore require the new note disclosures.
  3. Review the chart of accounts and reporting system mapping. Many entities will need to adjust general ledger structures or reporting system configurations to produce the new statement of profit or loss categories and subtotals without extensive manual intervention.
  4. Assess "other" line items for materiality. Identify any material "other income" or "other expense" balances that may need to be disaggregated under the new principles.
  5. Plan for the comparative restatement and reconciliation. Because MFRS 18 is applied retrospectively with a required reconciliation between the prior presentation and the new presentation, the comparative period's data needs to be available in a form that supports both bases.
  6. Communicate with the audit committee and external auditor early. Presentation changes of this scale benefit from early discussion with those charged with governance and with the entity's auditor, well before the transition year.

How Saifudin & Co can help

Saifudin & Co is a Malaysian Institute of Accountants (MIA) member firm (AF1451) providing accounting, financial reporting, and audit and assurance services to Malaysian companies. Our team supports clients preparing for MFRS transitions, including reviewing the impact of new and amended MFRS Accounting Standards on financial statement presentation and disclosure.

If your company reports under MFRS and would like to discuss how MFRS 18 may affect your statement of profit or loss presentation, chart of accounts, or reporting systems ahead of the 1 January 2027 effective date, our accounting and financial reporting and audit and assurance teams are available to discuss your requirements. For audit engagements, we maintain independence in accordance with the MIA By-Laws (On Professional Ethics, Conduct and Practice).

Request a consultation to discuss your MFRS 18 preparation timeline.

Sources

Last updated: July 2026

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