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A First Look at IFRS 18 in Practice: An Early Adoption Case Study

Everything so far has been fictional

IFRS 18 applies to annual reporting periods beginning on or after 1 January 2027. Early application is permitted, but almost nobody has taken it up, so everything the profession has worked with so far is illustrative — Reinvented Plc, Good Group, Illustrative Corporation. Fictional entities, drafted to demonstrate the requirements rather than to survive them.

Then a real one appeared

Sony Financial Group Inc. published IFRS reference consolidated financial statements applying IFRS 18 for the year ended 31 March 2026.

They contain a management-defined performance measure note with reconciliation, and a disaggregation of expenses by nature.

Real-world examples of either disclosure are scarce; this is a rare opportunity to watch both requirements operating together.

Three things about the entity and the document shape everything below.

It is a first-time IFRS adopter, so there is no legacy IAS 1 presentation to unwind and none of the retrospective restatement burden that deters established preparers — which is likely why the earliest examples are emerging from first-time adopters.

It is an insurance and banking group, classified as an entity whose main business activities include investing in financial assets and providing financing to customers.

And the document itself is voluntary. The statutory filing for the year was prepared on a different basis; these IFRS statements were published alongside it as reference information, ahead of a formal transition in the following year. They carry no audit report. That status matters twice over: it is very likely why early application was feasible at all, and it means the figures below are a construction example rather than an audited one. The same period will reappear as the comparative in the first statutory IFRS filing a year later, and that one will be audited.

What the categories did to this income statement

For an entity with those main business activities, interest, investment results and related finance items fall into the operating category rather than into investing or financing.

The result: operating profit and profit before financing and income taxes differ by ¥35 million, a share of equity-method results.
Financing expenses are only ¥2,267 million, because interest on liabilities other than those arising solely from funding transactions sits in operating.

The three-tier architecture flattens to almost a single tier.

Why an MPM becomes necessary

The operating category is a residual — what is left after investing, financing, tax and discontinued operations. It is not a curated measure of core performance.

Here the residual absorbs the full volatility of insurance finance results and of assets backing variable insurance contracts. The group disaggregates insurance finance income or expenses between profit or loss and OCI for contracts without direct participation features, but for certain variable life and annuity contracts those amounts go entirely to profit or loss.

So no subtotal in the primary statement represents underlying earnings. Adjusted Net Income excludes variable insurance-related gains and losses in both investment income and insurance finance results, foreign exchange gains and losses net of hedge cost equivalents, securities disposal results, and non-recurring items.

The pattern seems worth stating plainly: the MPM appears to reconstruct in the notes a separation the primary statement could not deliver. What the measurement standard leaves in profit or loss, and the operating category then absorbs, the MPM takes back out.

Worth noting too that the measure came first. The group had already committed publicly to a dividend policy expressed as a percentage of this adjusted figure, with the same adjustment items, before IFRS 18 was in the picture. The standard did not prompt the measure; it pulled an existing one into the notes. That is precisely the mechanism IFRS 18 was built around — a subtotal communicated outside the financial statements becomes a disclosure obligation inside them.

The reconciliation matrix

Adjusted Net Income is defined after tax, and that single choice determines the shape of the disclosure. Because the tax effect and the effect on non-controlling interests are required for each reconciling item, the reconciliation becomes a matrix.

Starting from a loss of ¥11,450 million before tax and ¥8,690 million after, total adjustments of ¥113,819 million after tax produce an Adjusted Net Income of ¥105,128 million. A reported loss becomes a reported profit, with the tax effect of every adjustment allocated and disclosed.

Three points. There is no NCI column — not because the group's non-controlling interests happen to be small in aggregate, but because the entities in which the adjustment items arose give rise to no effect on NCI at all. That distinction matters for anyone applying this to a group with partly owned subsidiaries: the test runs item by item, not at group level. Second, tax effects use the effective tax rate of each entity in which the underlying item arose — compliant, and the basis is disclosed, but it makes the adjusted effective tax rate move sharply year on year. Third, each item is cross-referenced to its income statement line: the column that makes the reconciliation traceable, and that demands data granularity no primary statement line contains.

Expenses by nature: a bridge, not an allocation

Only the specified nature items appear — employee benefits, depreciation, amortisation, impairment. The group's largest expenses, including insurance claims and commissions, do not. IFRS 18 does not require a complete nature-by-function matrix, and much of the allocation difficulty preparers anticipate is avoided by that scoping.

What the disclosure must solve is capitalisation. Of ¥159,610 million of employee benefits incurred, ¥78,092 million is attributable to insurance acquisition cash flows and sits in insurance contract assets and liabilities. Roughly half of the amount incurred is not an expense of the period.

The group does not allocate around this. It bridges: amount incurred, portion capitalised, amounts recognised inside the operating category, amount recognised outside it. For any group whose costs pass through an asset before reaching profit or loss — inventory, contract costs, capitalised development — that is the transferable idea. The problem is not how to allocate. It is which starting point to disclose, and how to bridge from it.

Why it matters

This is one of the earliest opportunities to see the requirements applied to a real company's financial statements rather than a drafted illustration.

The category structure delivers less than intended for financial institutions, the MPM disclosure carries correspondingly more weight, and the expenses-by-nature requirement proves narrower and more tractable than its reputation.

That the statements are reference information rather than a statutory filing is one reason they have drawn little attention. It is also what made them possible this early. The primary source is available, and worth working through directly.

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Disclaimer

This article is prepared for educational and informational purposes only. It reflects the author's analysis of IFRS 18 requirements and publicly available information, and does not constitute accounting or professional advice. Entities should consider their own facts and circumstances when applying IFRS Accounting Standards.

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