The adoption of IFRS 18 is set to reshape how financial performance is presented and explained by companies across the Kingdom of Saudi Arabia. As businesses prepare for the new requirements, IFRS Implementation Services Saudi Arabia is becoming increasingly relevant for finance teams seeking to understand how presentation, disclosure, performance measures, and comparative information may change. IFRS 18 becomes effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted. Saudi Arabia has also formally adopted IFRS 18 for application in the Kingdom.
One of the most important areas attracting attention is EBITDA, particularly adjusted EBITDA. EBITDA is widely used by management, lenders, investors, boards, and other stakeholders to evaluate operating performance. However, EBITDA itself is not an IFRS defined subtotal. Under IFRS 18, certain management defined performance measures can become subject to specific disclosure requirements when they are communicated publicly.
For KSA companies, this means EBITDA reporting may not disappear, but the way EBITDA is calculated, explained, reconciled, and communicated could become significantly more disciplined.
What Is IFRS 18 and Why Does It Matter?
IFRS 18 replaces IAS 1 and introduces a new framework for the presentation and disclosure of financial performance. The standard introduces defined subtotals including operating profit and profit before financing and income taxes. It also introduces requirements relating to management defined performance measures, commonly referred to as MPMs.
The objective is to make financial statements more comparable and transparent. Historically, companies could present alternative performance measures using different definitions. Two businesses could both report adjusted EBITDA while excluding different expenses, making direct comparison difficult.
IFRS 18 addresses this issue by requiring qualifying management defined performance measures to be explained and reconciled to the most directly comparable IFRS defined subtotal or total.
This is particularly relevant to KSA businesses because the Kingdom’s economy is becoming increasingly diversified. According to official statistics, Saudi Arabia’s real GDP grew by 4.5% in 2025, while non-oil activities increased by 4.9%. GDP at current prices reached approximately SAR 4,789 billion.
Such economic expansion means financial reporting needs to remain understandable for domestic and international stakeholders.
Why EBITDA Could Receive Greater Attention
EBITDA generally represents earnings before interest, taxes, depreciation, and amortisation. Although it is frequently used in financial analysis, EBITDA is not an IFRS defined subtotal.
The important distinction under IFRS 18 is between an accounting subtotal defined by IFRS Accounting Standards and a management defined performance measure used in public communications.
Adjusted EBITDA may qualify as an MPM when it represents a subtotal of income and expenses that is not specified by IFRS Accounting Standards and communicates management’s view of financial performance. IFRS materials specifically identify adjusted EBITDA as an example of a non-GAAP measure that may fall within the MPM framework.
This creates an important reporting consideration for KSA companies.
If an entity communicates adjusted EBITDA in its annual report, investor materials, management commentary, earnings communication, or other public communication, the finance team may need to evaluate whether that measure falls within the IFRS 18 MPM requirements.
The result could be more transparency around adjustments that were previously presented with limited explanation.
The New Operating Profit Structure
One of the most significant IFRS 18 changes is the introduction of operating profit as a required subtotal.
This can influence how users interpret EBITDA because EBITDA is often viewed as an indicator of operating performance. Under the new framework, users will have a more consistently defined operating profit figure within the statement of profit or loss.
The relationship could broadly be understood as follows:
Revenue
Operating income and expenses
Operating profit
Adjustments used in management performance measures
EBITDA or adjusted EBITDA where relevant
The exact relationship will depend on the company’s activities and the composition of its financial statements. EBITDA should not automatically be treated as equivalent to operating profit.
This distinction will matter for financial analysts because two numbers that appear conceptually similar can represent different measurement bases.
How Adjusted EBITDA Could Become More Transparent
Suppose a KSA company currently reports adjusted EBITDA of SAR 500 million. Management may calculate this figure by starting with a statutory profit measure and adjusting for selected items such as restructuring expenses, impairment charges, acquisition related costs, or other items.
Under IFRS 18, if the measure qualifies as an MPM, the company will need to provide greater transparency about the measure.
This includes explaining why the measure is useful, how management uses it, and reconciling it to the most directly comparable IFRS defined figure. IFRS 18 also requires information concerning changes in the composition of an MPM.
Therefore, an adjusted EBITDA figure of SAR 500 million could become more meaningful to investors because users can better understand how management arrived at that amount.
The objective is not necessarily to eliminate alternative performance measures. Instead, the objective is to make them easier to understand and compare.
What This Means for KSA Finance Teams
Finance departments in Saudi Arabia should begin treating EBITDA governance as a reporting process rather than simply a calculation exercise.
A strong internal process should identify every EBITDA measure currently used across financial statements, investor communications, board reports, financing documents, budgets, forecasts, and performance dashboards.
Finance teams should then determine whether each measure has consistent definitions.
For example, one department might exclude restructuring costs while another excludes restructuring, acquisition costs, foreign exchange movements, and selected provisions. Such differences can create inconsistencies between internal and external reporting.
The IFRS 18 transition provides an opportunity to create one controlled methodology.
Companies seeking structured support may also consider IFRS Implementation Services Saudi Arabia to assess reporting processes, MPM inventories, financial statement layouts, disclosure requirements, and comparative information.
The Importance of Comparative Information
IFRS 18 is not simply a forward looking presentation change.
The standard requires comparative amounts for the preceding period, and its application is retrospective.
This means KSA companies need to think about historical information before the mandatory effective date.
For a company adopting IFRS 18 for annual periods beginning in 2027, preparation during 2026 becomes particularly important. Finance teams may need to understand how prior period transactions would appear under the new presentation requirements.
This can require data analysis, account mapping, chart of accounts assessment, management performance measure review, and technology configuration.
The earlier these activities begin, the lower the risk of last minute reporting pressure.
Saudi Arabia’s Economic Transformation Makes Comparability More Important
The relevance of IFRS 18 extends beyond accounting compliance.
Saudi Arabia’s economic structure continues to develop rapidly. Official statistics show that real GDP increased by 3.0% year on year in the first quarter of 2026. Both oil and non oil activities grew by 2.9%, while government activities increased by 1.5%. Financial and insurance activities together with business services recorded growth of 5.4%, while manufacturing excluding oil refining grew by 4.0%.
These figures demonstrate the increasing breadth of economic activity in the Kingdom.
For investors comparing companies across financial services, manufacturing, construction, retail, hospitality, technology, logistics, and other sectors, standardized presentation can improve the usefulness of reported operating performance.
In February 2026, Saudi Arabia’s non oil exports including re-exports increased by 15.1% compared with February 2025. Re exported goods increased by 28.5%, while exports of machinery, electrical equipment, and parts increased by 59.9%.
As businesses expand into more complex activities, consistent performance reporting becomes increasingly important.
Potential Impact on Investor Analysis
Investors often use EBITDA margins to compare companies.
Consider two hypothetical KSA companies with revenue of SAR 2 billion each. If one reports EBITDA of SAR 300 million and another reports adjusted EBITDA of SAR 350 million, the second company appears stronger at first glance.
However, if the second company excludes SAR 50 million of recurring expenses that the first company includes, the comparison becomes less meaningful.
IFRS 18 can help users understand these differences by increasing transparency around qualifying management defined performance measures.
This does not guarantee that every EBITDA calculation will become identical. Different businesses can legitimately have different performance measures. However, users should receive clearer information about why management considers a particular measure useful and how it relates to IFRS figures.
Potential Impact on Banking and Financing Discussions
EBITDA is also commonly relevant to financing arrangements.
Lenders may use EBITDA or adjusted EBITDA when assessing leverage, debt service capacity, and covenant calculations. A company’s contractual definition of EBITDA can differ from the figure presented in financial reporting.
Therefore, KSA finance teams should not assume that an IFRS 18 EBITDA disclosure will automatically replace EBITDA definitions contained in financing agreements.
Instead, companies should map their reported performance measures against existing contractual definitions.
For example, if a financing agreement uses adjusted EBITDA of SAR 800 million, while the financial statements disclose an IFRS 18 related MPM of SAR 760 million, management should understand and document the reasons for the difference.
This type of reconciliation can reduce confusion between statutory reporting and financing metrics.
Data Systems and Technology Readiness
IFRS 18 implementation will not be limited to technical accounting manuals.
ERP systems, consolidation platforms, reporting templates, financial statement production tools, and management reporting systems may need modification.
Companies should identify the source of every significant adjustment used in EBITDA calculations.
A centralized reporting model can help ensure that:
Financial data is mapped consistently
Management measures use approved definitions
Adjustments are supported by documentation
Comparative information can be reconstructed efficiently
Financial statements and management reports remain aligned
Audit evidence is available
This is where IFRS Implementation Services Saudi Arabia can support organizations that need to connect technical accounting requirements with operational reporting systems.
What KSA Companies Should Do During 2026
With IFRS 18 becoming effective from 1 January 2027, 2026 represents a critical preparation period.
A practical implementation program can include several stages.
Stage 1: Identify Existing Performance Measures
Create an inventory of EBITDA, adjusted EBITDA, operating profit, adjusted operating profit, free cash flow, and other alternative performance measures used in public communications.
Stage 2: Assess MPM Classification
Determine which measures meet the IFRS 18 definition of management defined performance measures.
Stage 3: Review Calculation Methodologies
Document every adjustment included or excluded from each measure.
Stage 4: Build Reconciliation Templates
Develop repeatable reconciliations between management measures and the relevant IFRS defined figures.
Stage 5: Review Comparative Data
Assess historical information required for retrospective presentation and comparative disclosures.
Stage 6: Update Governance
Assign ownership for definitions, approvals, calculations, disclosures, and changes to management performance measures.
Stage 7: Test Reporting Systems
Validate that ERP and consolidation systems can generate the required information accurately and consistently.
Audit and Governance Considerations
Auditors and audit committees are likely to pay close attention to the consistency of management performance measures.
A company should be able to demonstrate that its EBITDA definition is supported by a clear methodology and that changes are properly documented.
If an adjustment is described as exceptional one year but becomes recurring in subsequent years, management should carefully consider whether continuing to exclude it remains appropriate for its chosen performance measure.
Strong governance can therefore become a competitive advantage.
It allows management to communicate performance clearly while reducing the risk of inconsistent financial messaging.
How IFRS 18 Could Change EBITDA Reporting Across KSA
The biggest change may not be the EBITDA number itself.
The more important change could be the quality of information surrounding that number.
Under IFRS 18, qualifying management defined performance measures are expected to receive greater disclosure discipline. Companies will need to explain their measures, provide reconciliations, and communicate changes clearly.
For KSA businesses, this could lead to EBITDA reporting that is more consistent, traceable, and understandable.
It may also encourage companies to reduce the number of overlapping performance measures and establish clearer internal definitions.
The transition could ultimately improve communication between management, investors, lenders, auditors, and boards.
Preparing for the 2027 Reporting Environment
The Saudi adoption of IFRS 18 means that organizations should not view the standard as a distant accounting requirement. The effective date is already defined, and Saudi professional accounting bodies have published IFRS 18 related material and implementation information.
A structured implementation plan during 2026 can give finance leaders enough time to identify reporting gaps, evaluate EBITDA definitions, assess systems, prepare comparative information, and strengthen disclosure controls.
Organizations may use IFRS Implementation Services Saudi Arabia when they require specialist assistance with technical interpretation, impact assessments, financial statement redesign, management performance measure analysis, and implementation planning.
IFRS 18 has the potential to change EBITDA reporting across KSA companies not because it creates an IFRS definition of EBITDA, but because it can impose greater transparency around qualifying management defined performance measures.
For businesses operating in a rapidly diversifying Saudi economy, this increased transparency is strategically important. With real GDP growing 3.0% in Q1 2026, non oil activities continuing to expand, and financial and business services recording 5.4% growth during the same period, stakeholders increasingly need financial information that supports meaningful comparison.
KSA companies that begin preparing now can use IFRS 18 as an opportunity to strengthen performance reporting rather than treating it only as a compliance exercise.
By reviewing EBITDA definitions, documenting adjustments, improving data controls, preparing comparative information, and establishing robust governance, finance teams can enter the 2027 reporting environment with greater confidence.
The emerging priority is clear: EBITDA should not simply be a headline figure. It should be a transparent, consistently calculated, well governed performance measure that stakeholders can understand and evaluate alongside IFRS based financial information.
IFRS Implementation Services Saudi Arabia can therefore play an important role in helping KSA organizations bridge the gap between technical IFRS 18 requirements and practical financial reporting processes.
