The same five categories, five very different income statements
Across this series, we've built up IFRS 18 piece by piece, the five categories, the operating, investing and financing rules, specified main business activities, cash flow consequences, and aggregation and disaggregation principles. In this final blog, we bring it all together and ask a practical question: what does IFRS 18 look like once you apply it to a real balance sheet in a real industry? The honest answer is that it looks quite different depending on the sector, and understanding those differences is essential for anyone benchmarking companies across industries under the new standard.
Banks and Lending Institutions: Interest Moves into Operating
Banks are the textbook example of why specified main business activities exist at all. Under a literal, default application of IFRS 18, a bank's interest income on customer loans would sit in investing, and its interest expense on customer deposits and wholesale funding would sit in financing, leaving ‘operating profit’ as a meaningless number that excludes the very activity that defines a bank.
IFRS 18 solves this by treating banks and other lending institutions as entities that provide financing to customers as a main business activity (and, frequently, that also invest in financial assets as a main business activity). The consequence: interest income and expense connected to customer lending and the related funding activities are classified in operating, not investing and financing. A bank's use of a ‘net interest income’ or ‘net financial margin’ metric, something banks have reported for decades, is itself cited by IFRS 18's application guidance as evidence supporting this classification.
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Practical nuance Banks often hold bank loans that are not specifically linked to customer financing, general corporate borrowing, for instance. IFRS 18 permits, and in some cases requires, an accounting policy choice for how income and expenses on such 'non-customer-specific' funding are classified, subject to consistency requirements. This is one of the more judgement-intensive areas for financial institutions transitioning to IFRS 18. |
Insurers: A Special Rule for Insurance Finance Income and Expense
Insurers face their own bespoke treatment. IFRS 18.64 requires that insurance finance income and expenses recognised under IFRS 17 always sit in the operating category, alongside insurance revenue and the insurance service result. This is not conditional on whether the entity has a specified main business activity of investing in assets; it is a blanket rule.
Perhaps more surprisingly, this rule doesn't only apply to traditional insurance companies. Any entity, including a manufacturer or retailer, that happens to issue contracts falling within the scope of IFRS 17 (for example, certain extended warranty arrangements) must classify the related insurance finance income and expense in operating, even if issuing such contracts is incidental to its main business and it isn't regulated as an insurer.
Insurers also very commonly have an investing specified main business activity alongside their insurance operations, holding large portfolios of financial assets (bonds, equities) to back policyholder liabilities. Where this is the case, fair value gains and losses, interest and dividend income on that investment portfolio also move into operating, producing an income statement where the overwhelming majority of activity, underwriting and investment management alike, is captured within the operating category, with investing and financing playing a much smaller residual role than for a typical corporate.
Real Estate and Investment Property Companies
For a real estate investment company or property fund holding investment property under IAS 40's fair value model, the classification outcome hinges entirely on whether investing in real estate is assessed as a specified main business activity. If it is , as is typical for a REIT or dedicated property investment vehicle, then rental income, fair value gains and losses on investment property, and related depreciation and disposal gains are all classified in operating. If the entity does not have such a main business activity, for example, a manufacturing company that happens to hold a single investment property as a passive sideline , those same items sit in investing instead.
This creates an important practical reality: two companies holding what is, economically, an identical investment property portfolio can produce completely different-looking income statements under IFRS 18, purely because of how central that activity is to each entity's overall business. This is precisely why the specified main business activity assessment (covered in blog five of this series) needs to be documented and defensible, not just asserted.
Manufacturers, Retailers and Other Corporates Without an SMBA
For the ‘plain vanilla’ corporate, a manufacturer, retailer, or services business without any specified main business activity , IFRS 18 produces the most conventional-looking outcome, closely resembling the default classification rules covered in our operating, investing and financing blogs:
| Item | Category | Why |
|---|---|---|
| Revenue from contracts with customers, cost of sales | Operating | Assets (inventory, receivables) don't generate an independent return. |
| Share of profit of equity-accounted associates and joint ventures | Investing | Always investing when the equity method is applied, regardless of SMBA status. |
| Fair value gains on a passively held equity investment or investment property | Investing | The asset generates a return independently, but investing in it is not a main business activity. |
| Interest expense on bank loans | Financing | Bank loans arise from transactions that involve only the raising of finance. |
| Interest income on trade/contract assets | Operating | Arises from an asset connected to the entity's operating activities, not an independent investment. |
Such entities will typically present additional (non-mandatory) subtotals such as gross profit and profit before income taxes, alongside the two mandatory subtotals , operating profit, and profit before financing and income taxes.
Manufacturers and Equipment Lessors With Embedded Financing
A specific sub-case worth calling out: manufacturers or distributors of high-value equipment (machinery, vehicles, industrial equipment) that routinely finance their customers' purchases , through instalment loans or finance leases , can find themselves with a financing-to-customers specified main business activity, even though the business self-identifies primarily as a manufacturer, not a finance company. Where this applies, interest income on customer financing arrangements moves into the operating category, changing the shape of the income statement materially relative to a manufacturer that simply sells for cash or on ordinary short-term trade credit.
Groups With Multiple Business Lines: Everything at Once
Large diversified groups frequently combine several of the scenarios above within a single consolidated entity , a financial services conglomerate might have a banking subsidiary (financing SMBA), an insurance subsidiary (mandatory operating classification for insurance finance income and expense, plus a likely investing SMBA for its investment portfolio), and a real estate arm (investing SMBA for investment property), alongside a smaller corporate treasury function with none of the above.
As covered in our SMBA blog, the assessment of specified main business activities is made at the relevant reporting entity level, which can produce different answers at subsidiary level versus consolidated group level. Diversified groups should expect substantial consolidation adjustments to reclassify items between operating, investing and financing as they roll subsidiary results up into group accounts , and should build this reclassification logic into consolidation systems well ahead of the 2027 effective date, rather than treating it as a manual, spreadsheet-driven year-end exercise.
A Cross-Industry Snapshot
| Industry | Typical SMBA status | Where the big classification shift happens |
|---|---|---|
| Banks / lenders | Financing to customers (often also investing) | Interest income and expense move from investing/financing into operating. |
| Insurers | Investing in financial assets (often); insurance finance income/expense always operating | Investment portfolio returns and insurance finance income/expense both land in operating. |
| REITs / property funds | Investing in real estate | Fair value gains/losses and rental income on investment property move into operating. |
| Manufacturers / retailers (no SMBA) | None | Classification follows the default operating/investing/financing rules closely. |
| Equipment manufacturers with customer financing | Financing to customers | Interest income on customer financing arrangements moves into operating. |
| Diversified groups | Varies by subsidiary and consolidation level | Significant consolidation reclassification adjustments between subsidiary and group accounts. |
Conclusion: One Standard, Many Income Statements
If there's a single theme running through this eight-part series, it's that IFRS 18 replaces the old flexibility of IAS 1 with something more structured, but not something uniform. The five categories and two mandatory subtotals apply identically to every entity, yet the actual shape of the resulting income statement depends heavily on what an entity's main business activities really are. A bank's operating profit will include net interest income; a manufacturer's will not. An insurer's operating profit will include investment returns backing policyholder liabilities; a retailer's will not. Understanding your entity's specified main business activities, and documenting that assessment rigorously , is therefore not a peripheral compliance step. It is the single factor that determines which version of the IFRS 18 income statement your organisation will end up presenting.
Every industry tells a different story under IFRS 18, and getting your entity's version right takes more than a generic checklist. CLA Emirates supports diversified groups across the UAE in achieving practical, well-documented IFRS compliance in the UAE, grounded in how your business operates.
Next in this series, we look at the overall illustration of IFRS 18 in the financial statement using a specimen.
