Agefi Luxembourg - mars 2026

AGEFI Luxembourg 16 Mars 2026 Banques / Assurances F or alternative investment enti- ties—such as real estate funds, private equity, private debt and infrastructure vehicles—IFRS 18 is far more than a presentation update. It represents a structural shift in howperformance is com- municated. By redefining cate- gories in the statement of prof- it or loss and introducing new requirements aroundmanage- ment performancemeasures, the standard significantly reshapes financial reporting for the sector. IFRS18 comes into effect on 1st January 2027 and requires retrospective applica- tion, making the 2026 year-end the required com- parative period. In practical terms, this means that impact assessments and any required updates to IT systems, processes and internal controls should be largely finalised before the beginning of 2026—or initiated immediately, if not already underway. Entities that act nowwill not only ensure compliance by 1 January 2027 but also strengthen the clarity and credibility of their financial reporting in an increas- inglydemanding investment environment. 1. Rethinking the classification of income and expenses A central feature of IFRS 18 is the introduction of mandatorycategories—operating, investing, financ- ing (the three key categories), discontinued opera- tions and income taxes—supported by tailored guidance for entitieswhosemainbusiness is invest- ing in assets. For alternative investment structures, this has direct implications. Operating category For entities whose primary activity is investing in assets, income and expenses arising from those main business activities must be presented within the operating category. This is a fundamental shift: operating profit is intended to reflect core perfor- mance, evenwhere that performance consists of fair valuemovements. Ifanentityinvestsinassetsthatgeneratereturnsindi- viduallyandlargelyindependentlyofotherresources, related income and expenses are classified as operat- ing. For most alternative investment entities, this includes fair valuegains and losses, interest anddivi- dend income, and related costs. -Realestateentities :Operatingwilltypicallyinclude rental income, fair value movements on investment property, interest income from finance leases, gains or losses on disposals, service charge income, and direct property expenses. For developers, revenue from property sales and construction costs also fall withinoperating; - Private equitymeeting the definitionof an invest- ment entity according to IFRS 10 : Fair value gains and losses on financial assets, dividend and interest income,managementandperformancefees,andpro- fessional expenses are generallyoperating items; and - Private debt vehicles : Interest income, fair value movements ondebt investments, andrelatedoperat- ing costs are presented in operating. Interest earned on cash balances is also included as part of the oper- ating category. In essence, IFRS 18 aligns operating profitwithwhatmanagementandinvestorstypically consider the entity’s core performance. Investing category Theinvestingcategorycapturesincomeandexpenses fromassetsthatgenerateindependentreturnsbutare not part of the entity’s main business activity. A real estate entity may classify in this category fair value movements from debt or equity investments mea- sured at fair value through profit or loss as well as interest income on cash and cash equivalents. In con- trast, a private equity or private debt entity may include income and expenses generated by invest- ment properties. As a general rule, income and expenses fromassoci- ates, joint ventures and unconsolidated subsidiaries accounted for using the equitymethodunder IAS 28 must always be presented in the investing category, irrespectiveoftheentity’smainbusiness.IFRS18does not prescribe the exact position of equity-accounted results within the investing category. Entities may choosetopresentthemimmediatelybelowoperating profit and introduce an additional subtotal if this enhances clarity. Transitionalreliefisavailable:wherepermittedunder IAS28,entitiesmayelecttomeasuresuchinvestments at fair value rather than applying equity accounting. For many investment entities whose sole business is investing in financial assets, the investing category maybelimitedinuse.Asaninvestmententityismea- suring its investment at fair value through profit or loss, all the fair value movements will be presented within the operating category. Financing category The financing category includes income and expenses arising from liabilities used to raise finance—such as bankborrowings, bonds anddebt instruments. Interest expense and similar effects on other liabilities not used to raise finance (e.g.: lease liabilities, provisions), pension liabilities), will always be includedwithin this category, regardless of the entity’s main business activity. This consis- tent treatment reinforces comparability and trans- parency in financing performance. Other key presentation considerations Foreign exchange differences UnderIFRS18,foreignexchangegainsandlossesfol- low the classification of the underlying item. FX on tenant receivables for a real estate entitywould there- fore be operating, while FX on foreign currency bor- rowings would be financing. Similarly, FX move- ments on core equity or debt investments for pri- vate equity or private debt funds are operating, whereas FX on financing liabilities is financing. Although conceptually straightforward, this approach may require system enhancements to ensure FX movements are tracked and classified appropriately. Derivatives Gains and losses on derivatives are classified in line with the underly- ing item or risk being hedged. For example: - Derivatives hedging interest rate riskonborrowings arepresented in financing; and - Derivatives hedging foreign exchange risk on investment prop- erty or financial investments held as part of the core business are presented in operating.Where deter- mining the appropriate classificationwould involve undue cost or effort, IFRS 18 permits presentation within operating as a practical simplification. Fundswithunits classified as liabilities For funds whose units are classified as financial lia- bilities under IAS 32, distributions are presented either as finance costs in profit or loss or within the statement of changes in net assets. Where units are classified as equity, distribution costs are required to be recognised in the statement of changes in equity. IFRS 18 does not introduce specific newguidance in this area, and current practice is expected to remain appropriate, provided classification principles are applied consistently. The subtotal “increase/(decrease) in net assets attributabletoholdersofunits”iscommonlyusedas theprofit or loss subtotal in the statement of profit or loss of alternative investment entities with liability presentation,consistentwiththeillustrativeexample in IAS 32. This presentation is expected to remain appropriate under IFRS 18, as the new standard retains the requirement to present profit or loss for the period and reinforces the principle that items in the primary financial statements and notes must be clearlylabelledanddescribedtofaithfullyreflecttheir nature and characteristics. 2. Statement of cash flows IFRS18introducesconsequentialamendmentstoIAS 7 that affect the statement of cashflows. Mandatory startingpoint (indirectmethod) Entitiesapplyingtheindirectmethodmustnowbegin the reconciliationwith thenewlydefinedmandatory subtotal—operatingprofitorloss.Thisremovesdiver- sity in practice and aligns the cash flow statement more closelywith the revised profit or loss structure. This changemay alter the nature andpresentationof non-cash adjustments included in the reconciliation. Interest anddividends Dividend income, interest income and interest expense must be presented within a single category in the statement of cash flows, consistent with their classification in profit or loss. For example, if interest expenseisclassifiedwithinfinancinginprofitorloss, related interest paid must also be presented within financing cash flows. Where such items appear inmore than one catego- ry in profit or loss, an accounting policy must be established to determine where the total cash flow amountwill be presented. Inpractice, this situation is expected to be uncommon for most alternative investment entities. Regardless of an entity’s main business activity, dividends paid are always classifiedwithinfinanc- ing cash flows. 3.Management PerformanceMeasures (MPMs) One of the most significant and debated aspects of IFRS 18 is the introduction of Management PerformanceMeasures(MPMs).Inmanycases,man- agement of alternative investment entities will need to exercise significant judgement in determining which of their existing financial performance mea- suresmeet the definition of aMPMunder IFRS 18. IdentifyingMPMs is likely to be a time-consuming process, requiring careful assessment against each of the three elements embedded in the definition. In addition, the specific disclosure requirements introduced by IFRS 18 for MPMs—including rec- onciliations and explanatory information—may go well beyond theway that entities disclose currently information regarding the performance and mea- sures used by the management to monitor and evaluate the results of the entity. The MPM requirements are not limited to listed companies. If a private entity publicly communi- cates a qualifying subtotal of income and expenses —for example, in investor reports or on a website that are publicly accessible—the disclosure require- ments apply. While the new framework increases reporting obli- gations, it also offers a structured mechanism for management to explain how performance is moni- tored and evaluated. Early identification of potential MPMs is essential to allow time for adjustments to systems, controls and governance processes. 4. IFRS 18 implementation: a strategic priority Despite competing priorities—such as sustainabil- ity reporting and Pillar Two tax reforms for exam- ple—management should not underestimate the magnitude of IFRS 18 implementation. As IFRS18 is requiring retrospective application, management should begin implementation efforts now—if this has not already started—to ensure readiness ahead of the mandatory effective date of 1 January 2027. Key actions include: - Performing a detailed impact assessment; - Reviewing classification policies; - Updating general ledgermappings; - Enhancing systems to track source and nature of income/expenses; - Revisiting internal controls; - Identifying potentialMPMs; and - Training finance teams. Madalina SCARLAT – SABAU, Accounting Advisory Senior manager, CMAAS (Capital Markets and Accounting Advisory Services) Philippe FOERSTER, Accounting Advisory Partner/Leader, CMAAS (Capital Markets and Accounting Advisory Services), PwC Luxembourg IFRS 18: Astep change for alternative investment entities L e site Internet de Luxembourg for Transparency (L4T)* a été mis en ligne en février 2026, tandis que l’association a été officiellement lancée à la fin de l’année 2025. Basée auLuxembourg, cette association sans but lucratif (ASBL) agit demanière indépendante, sans influence partisane, idéologique ou religieuse, et sans objec- tif commercial. Elle se donne pour objectif de promouvoir des pratiques de gouvernance responsables et de soute- nir un environnement économique et public plus transparent. La mission de L4T est de renforcer la transparence, l’intégrité et la responsa- bilité dans les secteurs public et privé luxembourgeois, tout en contribuant activement à la prévention et à la lutte contre la corruption et la criminalité financière. L’organisation mène des actions concrètes de sensibilisation sur les effets néfastes de la corruption, pro- duit des recherches et des outils pra- tiques pour soutenir les politiques publiques et les bonnes pratiques pro- fessionnelles, et collabore étroitement avec la société civile, les institutions publiques et les acteurs du secteur privé partageant la même vision d’un sys- tème plus transparent et responsable. L’association aspire à devenir un acteur indépendant de référence dans la pro- motion de l’intégrité au Luxembourg, un pays qui joue un rôle majeur dans le système financier mondial et au sein de l’Union européenne. L4T entend également contribuer aux efforts internationaux de lutte contre la corruption et les flux financiers illi- cites, en soulignant le rôle crucial de la société civile, de la recherche et de l’ex- pertise professionnelle pour renforcer les standards de gouvernance et pré- venir les abus. L4T a été fondée par Leena Hoffmann, cofondatrice et présidente, chercheuse spécialisée dans la lutte contre la cor- ruption et membre du Conseil interna- tional de Transparency International ; Dr OguzhanAkin, cofondateur et vice- président, expert reconnu en conformité et criminalité financière ; Carmen Bermejo, membre fondatrice et respon- sable des politiques publiques, spécia- liste de la conformité et de la lutte contre le blanchiment d’argent ; Elifsu Yigit, membre fondatrice et chercheuse asso- ciée, juriste spécialisée en réglementa- tion financière ; et Timothée Lefort, cofondateur et étudiant en relations internationales, qui s’intéresse notam- ment aux mules financières et à la fraude financière organisée. Ensemble, ils apportent une combinai- sond’expertise académique, profession- nelle et pratique pour renforcer la gou- vernance et l’intégrité au Luxembourg. * https://www.l4t.lu/ Luxembourg for Transparency (L4T) : Agir pour une finance plus transparente au Luxembourg ©Unsplash