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South Korea’s Financial Supervisory Service (FSS) announced on the 13th that K-IFRS 1118, “Presentation and Disclosure in Financial Statements,” will become mandatory starting January 1, 2027, and urged companies to conduct advance preparation reviews. Under the new standard, income statements must classify revenue and expenses into five categories—operating, investing, financing, income tax, and discontinued operations—while management-defined performance measures (MPMs) and details of operating expenses by nature and function must be disclosed in the notes. Because the standard applies retrospectively, comparative financial information from prior periods must also be restated under the new framework. The FSS directed companies to validate the new standard using actual data and to overhaul their systems and internal control procedures, while also requiring them to faithfully disclose anticipated changes in the notes to their third-quarter financial statements this year.
Key Elements
South Korea’s financial statement presentation framework will undergo a sweeping overhaul starting next year. The Financial Supervisory Service (FSS) announced on the 13th that K-IFRS 1118, “Presentation and Disclosure in Financial Statements,” will become mandatory from January 1, 2027, and that companies must validate the new standard in advance using actual data and remedy any deficiencies before implementation.
The core of the new standard is a complete restructuring of the income statement. Companies will be required to classify revenue and expenses into five categories—operating, investing, financing, income tax, and discontinued operations—and present subtotals for each category in the body of the statement. For investors, this means being able to distinguish between a company’s core business profitability and its financial activities performance.
The note disclosure burden will also increase significantly. Management-defined performance measures (MPMs)—metrics used internally for performance evaluation—must be disclosed in the notes to the financial statements, and operating expenses must be broken down by both nature and function. MPMs are non-GAAP measures that companies define themselves, with adjusted EBITDA being a prime example.
The FSS placed particular emphasis on retrospective application. Because the new standard applies to prior-period financial statements as well, companies must restate the comparative prior-year financial information under the new classification framework at the time of initial adoption. This is not simply a matter of changing next year’s closing process—it requires rebuilding historical data.
The supervisory authority directed companies to compare their current presentation and disclosure practices against the new standard’s requirements and identify key accounting issues such as revenue and expense category classification, determination of principal business activities, and MPM calculation methodologies. Preliminary analysis results should be documented as accounting policies and judgment criteria, while systems and internal control procedures—including account codes, mapping structures, financial statement formats, and disclosure templates—must be overhauled in tandem.
Transitional disclosures will also be required starting with this year’s third-quarter financial statements. The FSS instructed companies to faithfully disclose anticipated changes in key accounting policies, the reasons for changes in operating profit or loss, and MPM-related matters in the notes, along with the principal impacts analyzed to date. The intent is to allow investors to gauge company-specific effects before the new standard takes effect.
The FSS stated, “Companies must remedy deficiencies in accounting policies, data, systems, and closing procedures identified during the actual preparation and validation process,” adding that they “must conduct a final review of overall readiness, from data collection to financial statement preparation.”
The supervisory authority plans to work with related organizations—including the Korea Listed Companies Association, the KOSDAQ Association, and the Korean Institute of Certified Public Accountants—to encourage preparation for the new standard and to continue providing education on key accounting issues.
K-IFRS 1118 is the South Korean adoption of IFRS 18, which the International Accounting Standards Board (IASB) issued in 2024. IFRS 18 was established with the goal of standardizing income statement presentation to enhance comparability across companies. Previously, companies calculated operating profit differently, making it difficult for investors to directly compare profitability across firms.
Market observers anticipate that the new standard could change reported operating profit figures for individual companies. In particular, separating financing costs and investment-related gains and losses from the operating category may cause some companies’ operating results to be presented differently than before. Companies will need to finalize financial statement formats aligned with the new standard and revamp their accounting systems.
Ahead of the closing season, the FSS plans to monitor companies’ preparation status while also developing guidance on interpretive issues that arise during the application of the new standard, in consultation with related organizations.
