K-IFRS 1118 Expected to Change Financial Reporting for Korean Companies in 2027

K-IFRS 1118 will become mandatory starting in 2027, introducing significant changes to how companies present their income statements. This new accounting standard aims to standardize income statement presentations, enhance comparability of operating profit (OP), and strengthen disclosure requirements for performance measures defined by management. Under IFRS-18, income and expenses will be categorized into five groups: operating, investing, financing, income taxes, and discontinued operations.

A major shift for investors is that the operating category will no longer be restricted to profits from core business activities. Expenses previously classified as one-off or non-recurring may be included as operating items unless they qualify as investing or financing activities.

The implementation of IFRS-18 will compel companies to undertake a comprehensive review of their financial statement presentations. Traditionally in many Korean companies, items such as foreign exchange gains and losses, asset disposal gains and losses, provisions-related items, and certain income and expenses have been reported as non-operating.

For export-driven industries, such as Korean cosmetics firms, the classification will change as foreign exchange gains and losses may soon be included in operating earnings under IFRS-18. This means that fluctuations in exchange rates could directly impact their operating margins. Exporters with significant foreign sales and receivables in foreign currencies may face increased volatility in their operating profit as FX gains and losses are integrated into the operating category. Given the few early adopters in Korea, investors should carefully differentiate between historical operating margins and those aligned with IFRS-18 to avoid misinterpreting earnings trends.

APR serves as a key example, having adopted IFRS-18 beginning in 2026. With around 70% of its sales coming from North America and Europe, fluctuations in the South Korean won will lead to foreign exchange gains on trade receivables during depreciation and losses during appreciation. Investors are advised to be mindful of separating profitability trends driven by core operations from those resulting from FX-related items now classified within operating profit under IFRS-18.