Rules as of 29 October 2026. Checked against IFRS Foundation materials on IFRS 18 and the third edition of the IFRS for SMEs Accounting Standard, and the UAE Ministry of Finance's Ministerial Decision No. 114 of 2023.
The short answer: IFRS 18 replaces IAS 1 and changes how companies that use full IFRS present their profit and loss, for annual periods starting on or after 1 January 2027. Income and expenses go into five categories, there are two new required subtotals, and any "adjusted" profit figure management uses in public must be explained in a note. Most UAE small businesses use IFRS for SMEs instead, which has its own new edition from the same date.
Which accounting standard does a UAE company use?
For corporate tax, Ministerial Decision No. 114 of 2023 sets the rules:
| Revenue | Standard you can use |
|---|---|
| AED 3 million or less | Cash basis accounting is allowed |
| Up to AED 50 million | IFRS for SMEs is allowed |
| Above AED 50 million | Full IFRS, and audited financial statements are required |
IFRS is the baseline: a smaller company may choose full IFRS. Separately, a Qualifying Free Zone Person must have audited financial statements whatever its revenue (Ministerial Decision No. 84 of 2025). See audited accounts in the UAE.
What IFRS 18 changes
1. Five categories in the income statement
Every income and expense item goes into one of five categories:
- Operating: the default category, for the main business
- Investing: returns from investments, such as income from associates and some financial assets
- Financing: for example interest on borrowings
- Income taxes
- Discontinued operations
Companies whose main business is investing or lending to customers (for example banks and investment entities) classify some of these items differently.
2. Two new required subtotals
- Operating profit
- Profit before financing and income taxes
Today, companies define "operating profit" in different ways. Under IFRS 18 it has one meaning, so investors can compare companies.
3. Management-defined performance measures
If management uses an "adjusted" or "underlying" profit measure in public communications (outside the financial statements), IFRS 18 calls it a management-defined performance measure. Each one must be explained in a single note, with a reconciliation to the closest IFRS subtotal.
4. Better grouping of information
IFRS 18 sets clearer rules on when to aggregate or split items, so large "other" lines are less common.
5. Cash flow statement changes
With IFRS 18 come limited changes to IAS 7: operating profit becomes the starting point for the indirect method of presenting operating cash flows.
When it applies
IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027, and it can be applied early. It applies retrospectively, so comparative figures for 2026 are re-presented in the 2027 statements. Start mapping your accounts now, not in early 2028.
What about IFRS for SMEs?
IFRS 18 amends full IFRS. Companies using IFRS for SMEs follow the third edition of the IFRS for SMEs Accounting Standard (issued in February 2025), also effective for periods beginning on or after 1 January 2027. Its main changes are in the concepts section, consolidated statements, financial instruments, a new fair value section, business combinations and revenue from contracts with customers. The revised sections apply retrospectively, with early application allowed.
What UAE businesses should do now
- Confirm which standard you use: cash basis, IFRS for SMEs or full IFRS. It also matters for corporate tax.
- Full IFRS users: map your chart of accounts to the five IFRS 18 categories and plan the two new subtotals.
- List any "adjusted profit" figures you share with banks or investors; they may need a note.
- IFRS for SMEs users: review revenue recognition under the new section, especially for contracts with several deliverables.
- Talk to your auditor early if your statements are audited.
We keep books and prepare financial statements under the right standard for each client. See our accounting services and bookkeeping.
Questions
When is IFRS 18 effective?
For annual reporting periods beginning on or after 1 January 2027, with early application allowed. It replaces IAS 1.
What are the categories in IFRS 18?
Operating, investing, financing, income taxes and discontinued operations.
What are management-defined performance measures?
Subtotals of income and expenses that management uses in public communications outside the financial statements, such as adjusted profit. IFRS 18 requires them to be explained in one note with a reconciliation to an IFRS subtotal.
Does IFRS 18 apply to small companies in the UAE?
It applies to companies using full IFRS. Companies using IFRS for SMEs, allowed up to AED 50 million revenue for corporate tax, follow the third edition of IFRS for SMEs from 1 January 2027 instead.
Which accounting standard must I use in the UAE?
Under Ministerial Decision No. 114 of 2023: IFRS as the baseline, IFRS for SMEs allowed up to AED 50 million revenue, and cash basis allowed up to AED 3 million revenue.
Sources
- IFRS Foundation: new IFRS Accounting Standard (IFRS 18)
- IASB project summary: IFRS 18
- IFRS Foundation: IFRS for SMEs third edition supporting materials
- Ministerial Decision No. 114 of 2023 on accounting standards for corporate tax (Ministry of Finance)
- Ministerial Decision No. 84 of 2025 on audited financial statements (Ministry of Finance)
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