AZ Newsletter: July 1, 2026
The Starting Point: Why This Matters Now
The International Accounting Standards Board has concluded a multi-year programme of standard-setting and targeted amendments whose effective dates now fall within the 2025 and 2026 reporting cycles. Three developments carry the greatest implications for financial statement preparers and their external auditors: the introduction of IFRS 18 Presentation and Disclosure in Financial Statements, the 2022 amendments to IFRS 9 and IFRS 7 on classification and measurement, and the persistent challenge of IAS 36 impairment testing in a high-rate environment.
Each of these areas creates a distinct category of audit risk. In combination, they represent a concentration of judgement, disclosure, and evidence requirements that will attract regulatory scrutiny at the 2025 and 2026 year-ends.
IFRS 18 — Presentation and Disclosure in Financial Statements
IFRS 18 replaces IAS 1 and is mandatory for annual periods beginning on or after 1 January 2027, with earlier application permitted. However, the standard’s implications for current-period planning are already active.
New income statement structure. IFRS 18 introduces five mandatory categories in the statement of profit or loss: Operating, Investing, Financing, Income Taxes, and Discontinued Operations. The Investing and Financing categories carry defined content — items that many entities currently present within operating profit will require reclassification. Entities in the real estate, technology, and financial services sectors, which rely on customised subtotals, are particularly exposed.
Management-Defined Performance Measures (MPMs). Where an entity communicates non-IFRS measures in its public reporting — adjusted EBITDA, funds from operations, net operating income — IFRS 18 requires these to be disclosed in the notes with a reconciliation to the nearest IFRS line item and an explanation of why management considers the measure useful. This note becomes subject to audit procedures. Auditors must scope this in from the planning stage, and clients must identify which of their external communications contain MPMs before the standard takes effect.
Audit implication. For 2025 year-end audits, the comparative period will need to be restated on adoption of IFRS 18. This means the audit evidence gathered for 2025 presentations is directly relevant to future audit cycles. Auditors should discuss IFRS 18 readiness with audit committees now, not at the point of adoption.
IFRS 9 Amendments — Classification and Measurement (Effective 2026)
The October 2022 amendments to IFRS 9 and IFRS 7, effective for annual periods beginning on or after 1 January 2026, address the classification of financial assets with non-standard features and introduce new disclosure obligations for ESG-linked instruments.
Financial assets with contingent features. The amendments clarify that a financial asset containing a contractual feature that could modify the timing or amount of contractual cash flows must be assessed to determine whether that feature is de minimis or non-genuine. Where it is neither, the asset fails the solely payments of principal and interest (SPPI) test and must be measured at fair value through profit or loss. Many treasury teams have not yet assessed their loan portfolios, ESG-linked facilities, or structured instruments against this revised guidance.
Audit implication. Auditors must request a documented SPPI assessment for all instruments with contingent or adjustable features as part of the planning pack. Where reclassification is required, IFRS 7 disclosures must address the change, and the prior-period comparative must be restated. Audit files that simply roll forward the prior-year classification schedule without re-performing the test will not meet current standards.
IAS 36 — Impairment Testing in a High-Rate Environment
The Compliance Position Right Now
For 2025 year-end engagements, three specific actions must be completed before the financial statements are authorised for issue.
- IFRS 18 gap analysis. Preparers should complete a gap analysis against their current income statement presentation and identify all items that will require reclassification under the new five-category structure. This analysis should be documented now — both to support the comparative restatement on adoption, and to inform audit committee discussions about the expected impact on reported operating profit and any MPMs used in investor communications. Auditors should request evidence of this analysis as part of the risk assessment process.
- IFRS 9 SPPI scoping exercise. Treasury and finance teams should identify all financial instruments containing contingent or adjustable features — ESG-linked loans, margin-adjustable facilities, step-up bonds, profit participation instruments — and document the SPPI assessment for each under the amended guidance. Where the assessment changes the classification, the reclassification must be applied retrospectively, and the IFRS 7 transition disclosures must be prepared. Auditors should confirm this documentation exists before relying on management’s classification schedule.
- Impairment model governance. Management impairment models must be updated at each reporting date — not rolled forward from prior periods. The discount rate, terminal growth rate, and cash flow projections must reflect conditions as at the balance sheet date. Audit committees should request sight of the sensitivity analysis before the accounts are authorised. Where an external valuation specialist has been engaged, the auditor’s responsibility to evaluate the specialist’s work under ISA 620 is not discharged by referencing the report — independent recalculation of key inputs is required.
What to Consider Next
The convergence of IFRS 18, the IFRS 9 amendments, and the heightened challenge environment for impairment creates a concentration of disclosure, judgement, and evidence requirements at the 2025 and 2026 year-ends. These are not deferred considerations — they require active decisions from CFOs, finance directors, audit committees, and external auditors now.
Entities that have not begun their IFRS 18 readiness work, that have not re-performed SPPI assessments for instruments with non-standard features, or that are rolling forward impairment models without updating the underlying assumptions carry a material risk of financial statement misstatement and audit qualification at year-end.
We work closely with preparers, audit committees, and finance teams on IFRS technical advisory, financial statement reviews, and external audit engagements across the UAE. If you have questions about how these developments affect your specific entity or reporting structure, we are available to discuss.
The IASB has concluded a significant program of standard-setting activity that is now entering mandatory effective date windows. For entities with financial year-ends in 2025 and 2026, the implications for financial statement preparation and external audit are material.
This newsletter identifies the three most significant developments, explains the audit risk they create, and sets out the specific actions that preparers and auditors must take before the next reporting cycle.
Stay informed with AZ Group — your trusted partner for audit, IFRS compliance, and financial reporting advisory in the UAE.
THAER ANKEH
AUDIT & IFRS MANAGER
