IFRS 18: what changes in the cash flow statement
· Reviewed by Noura Alderaan, SOCPA Fellow (No. 1379)
IFRS 18 is mostly about the income statement, but it also amends IAS 7 Statement of Cash Flows. The changes apply from the same date: annual periods beginning on or after 1 January 2027.
1. Before and after
| Item | Before: IAS 7 with IAS 1 | After: IAS 7 as amended by IFRS 18 |
|---|---|---|
| Starting point of the indirect method | Profit or loss; practice varied (profit before zakat, net profit) | The operating profit subtotal |
| Interest paid | Choice: operating or financing | Generally financing |
| Dividends paid | Choice: operating or financing | Generally financing |
| Interest received | Choice: operating or investing | Generally investing |
| Dividends received | Choice: operating or investing | Generally investing |
| Zakat and income tax paid (Saudi Arabia, as endorsed) | Operating, disclosed separately | Operating, disclosed separately, unless specifically identified with financing or investing |
Banks and other companies whose main business is providing financing or investing follow different rules for interest and dividends.
2. What this means in practice
- The reconciliation from profit to operating cash flow is rebuilt, because it now starts from operating profit.
- A company that showed interest paid in operating activities will report higher operating cash flow and lower financing cash flow, with no change in total cash.
- The 2026 comparative cash flow statement is restated on the same basis.
- Cash flow covenants and KPIs such as operating cash conversion should be recomputed on both bases.
3. Steps for the finance team
- Identify the current policy for interest and dividends in the cash flow statement.
- Rebuild the cash flow template so the indirect method starts from operating profit.
- Restate the 2026 comparative.
- Check any ratio or target that uses operating cash flow.
4. How Entry Post helps
Entry Post prepares the IFRS 18 impact study, restates the comparatives, and builds the disclosure templates and the board and audit-committee briefing. Most impact studies take 4–6 weeks. If we are your auditor, our role stays within what independence rules allow; otherwise we work alongside your auditor.
Frequently asked questions
Does IFRS 18 change the cash flow statement?
Yes. It amends IAS 7: the indirect method starts from operating profit, and the classification choices for interest and dividends are removed for most companies.
Where is interest paid shown after IFRS 18?
Generally in financing activities, for companies that are not banks or similar entities.
Where is zakat paid shown?
Under IAS 7 as endorsed in Saudi Arabia, in operating activities and disclosed separately, unless it can be specifically identified with financing or investing activities.
Does total cash change?
No. Only the split between operating, investing and financing activities changes.
Official sources
- IFRS Foundation: IFRS 18 project summary (April 2024)
- SOCPA: document of endorsement of IFRSs for adoption in Saudi Arabia (revised 24 December 2025)
- IFRS Foundation: IFRS 18 Presentation and Disclosure in Financial Statements
General information based on the official sources listed. It is not professional advice for your company.