2026.10.13. The Fair Economy — The Financial Supervisory Service (FSS) has instructed companies to prepare for K-IFRS No. 1118 (Presentation and Disclosure in Financial Statements), effective January 1, next year, in five stages ranging from impact analysis to the actual preparation and verification of financial statements.
The Financial Supervisory Service released a press release on the 13th titled "2027 K-IFRS Standard No. 1118 Implementation, Check Your Preparation Status" and announced five major tasks: impact analysis, detailed specification of key accounting policies and judgment criteria, system and closing procedure improvements, production and verification of financial statements and comparative information using actual data, and correction of deficiencies and final preparation status check.
In the first stage, impact analysis, companies compare the presentation and disclosure methods of current financial statements with the requirements of the new standard and tentatively analyze the changes needed and the impact on the company. They identify key accounting and disclosure issues applicable to the company, such as the classification of income and expense categories, principal business activities, and management-defined performance measures (MPM), and determine whether additional information, data, and system changes are needed to apply the new standard.
In the second stage, based on the provisional impact analysis results, companies will specify the accounting policies and judgment criteria to be applied when preparing actual financial statements for each major issue, including revenue and expense category classification, principal operating activities, and MPMs. Significant accounting policies and judgments must be documented with relevant facts and rationale to ensure consistent application in the future.
In the third stage, companies design and reflect system changes required to incorporate the confirmed accounting policies and necessary information, such as account titles, mapping structures, financial statement and disclosure formats. They also improve data collection, processing, and review procedures to ensure timely acquisition of information needed for new profit and loss classification and note disclosures, and adjust the roles of responsible departments and internal controls to align with the changed systems and workflows.
In the fourth stage, companies go beyond merely setting up systems; they prepare financial statements under the new standard using actual data and verify the results. They compare financial information under the previous standard with the results of applying the new standard, analyze key differences and causes, and check whether system outputs align with accounting policies and source data, verifying and supplementing any classification or calculation errors or omissions.
In the fifth stage, companies address deficiencies in accounting policies, data, systems, and settlement procedures identified during the actual preparation and verification process, and conduct a final check to ensure they are ready to prepare the first-time application financial statements in 2027 without disruption. They share the changes with relevant departments and provide necessary training to ensure the new accounting policies and procedures are consistently applied in the actual settlement process.
K-IFRS 1118 is mandatory for fiscal years beginning on or after January 1, 2027, and for companies with a December year-end, it applies from the first quarter financial statements of 2027. The new standard brings significant changes to the presentation and disclosure framework, including classifying income and expenses in the income statement into operating, investing, financing, income tax, and discontinued operations categories, and introducing subtotals for each category.
The Financial Supervisory Service plans to support the smooth adoption of K-IFRS No. 1118 through education and publicity together with related bodies such as the Korea Listed Companies Association, KOSDAQ Listed Companies Association, and Korea Institute of Certified Public Accountants. It also directed companies to faithfully disclose the major impacts of applying the new standard in their 2026 financial statements, referring to the "Model Pre-Footnote Disclosure for K-IFRS No. 1118 Impact" distributed in April.
The best practice was disseminated through related institutions such as the Korea Listed Companies Association, KOSDAQ Listed Companies Association, and Korea Institute of Certified Public Accountants, and it encourages companies to include changes in accounting policies, expected variations in operating profit and loss, and MPM-related matters as notes starting from their third-quarter financial statements this year. The Financial Supervisory Service intends to continue providing ongoing publicity and education to ensure the new standard settles smoothly in the market.
K-IFRS No. 1118 was developed as part of a sweeping overhaul of International Financial Reporting Standards (IFRS). The IFRS Foundation (now the International Accounting Standards Board) issued "IFRS 18 (Presentation and Disclosure of Financial Statements)" in April 2021, which has been regarded as the most significant change to income statement presentation since the 1970s. South Korea incorporated the intent of IFRS 18 and issued and published K-IFRS No. 1118 in December 2025.
The new standard is designed to allow companies to clearly distinguish the performance of their core business from investing and financing activities for investors. The core of the change is redefining "operating profit" from a focus on "principal operating activities" to a "residual category" that does not fall under other categories such as investing or financing.
Since K-IFRS No. 1118 is applied retrospectively, companies must restate past financial information presented for comparison in the first financial statements under the new standard to conform to the new requirements. This means companies need to have sufficient historical data and be able to explain the amount differences between the old and new standards. The Financial Supervisory Service recently emphasized, "Historical financial information displayed for comparison must also be restated according to the new standard, and it is crucial to secure the necessary information in advance and to calculate and verify the actual figures."
Companies need to reclassify past profit and loss items to fit the new categories and verify whether MPM-related information existed in the past. In particular, December year-end companies are expected to face a burden of double work as they must apply the new standard starting from their first-quarter financial statements next year while simultaneously rewriting 2026 comparative information.
The newly introduced disclosure of "Management Performance Measures (MPMs)" brings non-accounting metrics that companies have voluntarily used in earnings releases or investor relations materials into the institutional framework. MPMs refer to profit indicators defined and used by companies under names not found in accounting standards, such as "adjusted operating profit" or "net income excluding one-time costs." It has been widely pointed out that even when using the same name, items excluded or added vary by company, making intercompany comparisons difficult.
Under the new standard, when a company uses MPM in external communication, it must disclose in notes the calculation method, the adjustments to the most similar profit subtotal under the standard (such as operating profit and loss), and the tax effects. The Financial Supervisory Service provided guidance on MPM definition, disclosure requirements, and the disclosure of evaluation progress when MPM is not yet finalized in its April best practice.
The reclassification of operating profit is expected to have a significant impact on companies' financial statements. Under the previous K-IFRS 1001, profit or loss related to principal operating activities was considered operating profit, but under K-IFRS 1118, all income and expenses that do not belong to the investing, financing, income tax, or discontinued operations categories are classified into the operating category (residual category). Accordingly, gains or losses on disposal of property, plant and equipment, previously classified as non-operating, will move into the operating category, while equity-method gains or losses, sometimes included in operating profit, will be reclassified to the investing category.
To prevent confusion among information users, the Financial Supervisory Service has made it mandatory to disclose in notes the differences and adjustment details between operating profit and loss under the old method and under the new standard. This measure is intended to enable investors to distinguish and understand profit and loss generated from core operations from that arising from investment and financing activities.
The presentation of the cash flow statement also changes. When calculating cash flows from operating activities using the indirect method, the starting point shifts from net income to operating profit and loss. Additionally, the classification criteria for cash flows related to interest and dividends change. Previously, companies could classify interest received and dividend income as either operating or investing activities, but under the new standard they are, in principle, classified as investing activities, while interest paid is classified as financing activities.
Accordingly, companies must change their cash flow statement preparation method, and past comparative information must also be re-prepared according to the new standard. The Financial Supervisory Service has instructed in its best practice to disclose in notes the changes in operating cash flow resulting from the cash flow statement revision and the main causes.
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