FRS 118 is coming: what changes in your 2027 financial statements

What is FRS 118, and when does it start?

In October 2024 Singapore’s Accounting Standards Committee (ASC) issued SFRS(I) 18 and FRS 118, Presentation and Disclosure in Financial Statements. They are Singapore’s versions of the international standard IFRS 18 and contain no Singapore-specific differences. They replace SFRS(I) 1-1 and FRS 1, the standards that have governed the layout of financial statements for decades.

The new standards apply to annual reporting periods beginning on or after 1 January 2027, and early adoption is allowed. In practice:

If you are still deciding on a year end for a new company, our guide to choosing your financial year end explains how the date drives every other deadline.

Who is affected, and who isn’t

Singapore companies prepare their statutory accounts under one of three frameworks. FRS 118 reaches two of them:

• Listed companies (SFRS(I)) apply SFRS(I) 18, including in their condensed interim reports.
• Non-listed companies reporting under FRS apply FRS 118. This is the largest group, and includes many MNC subsidiaries, family groups and audit-exempt SMEs that use full FRS.
• Companies using SFRS for Small Entities are not affected by FRS 118. That framework has its own update, a Third Edition also effective for periods beginning on or after 1 January 2027, which changes other areas.

Subsidiaries of overseas groups should also check what the parent needs. A parent reporting under IFRS 18 will want group reporting packs in the new categories from 2027, whatever framework the Singapore statutory accounts use.

The five new categories in your P&L

FRS 1 left companies a lot of freedom in how they laid out the statement of profit or loss. FRS 118 removes much of it. Every item of income and expense now goes into one of five categories. For a typical trading or services company (one whose main business is not investing or lending), the broad rules are:

Two subtotals become compulsory: operating profit or loss, and profit or loss before financing and income taxes. Both must be shown even where they happen to be the same number. Foreign exchange differences generally follow the category of the item that created them, so an exchange loss on a trade payable is operating, while one on a US-dollar bank loan is financing.

Before and after: an SME profit and loss statement

Here is a simplified example for a trading company (S$’000). The company has a bank loan and leases, holds fixed deposits and a small share portfolio, owns 30% of an associate, received a government grant, and had a foreign exchange loss on supplier balances.

The bottom line is identical. What changes is the story in the middle: a new operating profit of S$1.25 million appears, investment income no longer flatters “other income”, and every finance cost sits below a clearly labelled line. Readers, banks and buyers will start comparing companies on that operating profit figure.

Management-defined performance measures

Many companies publish their own profit measures, such as “adjusted EBITDA” or “underlying profit”. FRS 118 calls these management-defined performance measures (MPMs): subtotals of income and expenses that are not specified by the standards, that you use in public communications outside the financial statements, and that show management’s view of an aspect of performance.

If you have MPMs, you must disclose them in a single note in the financial statements, which is therefore audited. The note explains why each measure is useful and how it is calculated, and reconciles it to the closest FRS 118 subtotal, showing the tax and non-controlling interest effect of each reconciling item.

Some common subtotals are specifically not MPMs, including gross profit, profit before income tax and operating profit before depreciation, amortisation and impairments. An “adjusted” EBITDA that also strips out items such as one-off costs or share-based payments generally is an MPM if you publish it.

For most private SMEs the practical question is whether they publish performance measures at all. If your only audience is your bank, your board and your shareholders, you may have none. Groups that issue investor presentations, annual reports or press releases with adjusted figures should list every such measure now. Our guide to the financial metrics to monitor covers the internal KPIs most owners track.

Other changes: expenses, grouping and cash flows

Expenses by function now need a nature breakdown. Companies can still present operating expenses by function (cost of sales, distribution, admin) or by nature (staff costs, depreciation and so on). If you present by function, you must also disclose in one note the totals for depreciation, amortisation, employee benefits, impairment losses and inventory write-downs, and which function lines they sit in.

Grouping gets stricter. FRS 118 sets out principles for when to combine items and when to split them out. Large unexplained balances labelled “other” are discouraged: use a more descriptive label, or explain what is inside. Expect your auditor to challenge any material “other income” or “other expenses” line.

The cash flow statement changes too. Under the related amendments, the indirect method must start from operating profit rather than profit before tax. Most of the existing choice over where interest and dividends go is removed: for a typical company, interest and dividends received are investing cash flows, and interest and dividends paid are financing cash flows. If you have always shown interest paid under operating activities, your operating cash flow will look stronger from 2027. Our article on cash flow versus profit explains why the two differ in the first place.

Why 2026 comparatives need work now

FRS 118 applies retrospectively. Your first FRS 118 financial statements must show the comparative year in the new format, and include a reconciliation, line by line, between the restated comparative profit or loss and the amounts previously reported under FRS 1.

For a December year-end company, the comparative year is 2026, which is nearly over. Classifying 2026 transactions correctly is far easier while the year is still open than eighteen months later. In practice, that means:

• splitting “other income” and “finance costs” into accounts that map cleanly to the new categories;
• separating interest on bank loans from interest on leases and other liabilities;
• tagging foreign exchange gains and losses by their source (trade balances, loans, cash or investments); and
• recording depreciation, amortisation, staff costs and impairments so they can be summarised by nature.

Most of this is a chart of accounts exercise. A well-run monthly close makes it much easier, and it is the same discipline that smooths an audit. See our guide to preparing for your first audit.

Knock-on effects: loans, bonuses and filings

• Loan covenants. Facility agreements often define EBIT, EBITDA or interest cover by reference to line items in the accounts. If the line items move, the covenant calculation can shift even though nothing about the business has changed. Check the definitions and, where needed, agree with your bank how they will be read from 2027.
• Bonus and earn-out formulas. Management bonuses, profit shares and acquisition earn-outs tied to “operating profit” may need their definitions confirmed, because operating profit now has a defined meaning.
• Group reporting. Subsidiaries should agree category mapping with the parent early, so the Singapore statutory accounts and the group pack tell the same story.
• XBRL filing. Your financial statements are filed with ACRA in XBRL alongside the annual return, so the mapping of your P&L line items will need to be revisited for the new structure. See our guide to XBRL filing in Singapore.
• Tax computations. Taxable profit doesn’t change, but the starting point and labels in your tax computation will. Make sure your tax adviser’s schedules tie to the new line items.

An eight-step readiness checklist

• Confirm your framework: FRS, SFRS(I) or SFRS for Small Entities. Only the first two are affected by FRS 118.
• Note your first FRS 118 year and the comparative year you must restate.
• Map every P&L account to operating, investing or financing, and flag the judgement calls (FX, interest income, investment property).
• Split mixed accounts in your chart of accounts before the 2026 year end.
• List any measures you publish (adjusted EBITDA, underlying profit) and decide whether they are MPMs.
• Draft a pro forma 2026 P&L in the new format and compare it with the old one.
• Review loan covenants, bonus schemes and earn-outs that refer to profit subtotals.
• Talk to your auditor early about classification judgements and the transition reconciliation.

Frequently asked questions

When does FRS 118 take effect in Singapore?

For annual reporting periods beginning on or after 1 January 2027, with earlier application allowed. A December year-end company first applies it to the year ending 31 December 2027.

Does FRS 118 apply to private companies?

Yes, if they report under FRS. It replaces FRS 1 for all FRS reporters, listed or not. Companies using SFRS for Small Entities are not affected.

Does FRS 118 change my company’s profit?

No. It changes presentation and disclosure, not recognition or measurement. Profit for the year is the same; the route to it is laid out differently.

Do we need to restate our 2026 figures?

Yes. The standard is retrospective, so your comparative year is re-presented in the new format, with a reconciliation to the amounts previously reported under FRS 1.

Is EBITDA a management-defined performance measure?

Operating profit before depreciation, amortisation and impairments is specifically excluded. An adjusted EBITDA that removes other items generally is an MPM if you use it in public communications.

The bottom line

FRS 118 doesn’t change a single dollar of profit, but it changes how every reader will see your results, from “operating profit” to how finance costs and investment income are shown. Because it is retrospective, December year-end companies are already in their comparative year. A few hours spent now on your chart of accounts, covenants and published measures will save a scramble when the first FRS 118 accounts are due.

Sources: ACRA — ASC issues Presentation and Disclosure in Financial Statements and narrow-scope amendments to SFRS(I)s and FRSs; IFRS Foundation — IFRS 18 Presentation and Disclosure in Financial Statements; ACRA — Singapore Financial Reporting Standard for Small Entities; Forvis Mazars Singapore — SFRS(I) 18 / FRS 118 Newsletter Vol. 1; EY — Applying IFRS: A closer look at IFRS 18. This article is general information, not professional advice for your company’s situation.