When a company announces a rise in “adjusted earnings”, investors may welcome the headline. But what exactly has been adjusted, which costs have been excluded and how does that figure compare with the profit reported in its financial statements? These questions go to the heart of corporate transparency. A new accounting standard will demand clearer answers from 2027.

Malaysia’s MFRS 18, Presentation and Disclosure in Financial Statements, replaces MFRS 101 and applies to annual reporting periods beginning on or after January 1, 2027, with early application permitted. For December year-end companies, 2026 comparative information must be restated. They must also reconcile comparative-period profit or loss line items between the previous MFRS 101 and new MFRS 18 presentations.

MFRS 18 is designed to improve how financial performance is presented, not to change a company’s underlying profitability. It introduces a more structured income statement, including defined subtotals for operating profit and profit or loss before financing and income taxes.

Companies have not always used “operating profit” consistently. Different inclusions and exclusions can make comparisons difficult, even within the same industry. A common framework gives investors a clearer starting point. However, the more interesting development for investors may be the introduction of management-defined performance measures (MPMs).

Companies often use measures such as adjusted operating profit, adjusted profit or adjusted Ebitda in results announcements and investor presentations. Some may qualify as MPMs, depending on how they are used and whether they meet MFRS 18’s definition. They can explain management’s view, but also shape perceptions when adjusted figures receive more attention than reported profits. The Securities Commission Malaysia's Malaysian Code on Corporate Governance emphasises meaningful corporate reporting and transparency, while Bursa Malaysia's Corporate Disclosure Guide calls for accurate, complete and balanced disclosures. These expectations provide a broader governance context for MFRS 18, which seeks to make the presentation of financial performance more consistent and informative for investors.

Importantly, MFRS 18 does not require companies to produce adjusted earnings or prohibit their use. Instead, it introduces specific disclosure requirements for qualifying MPMs. These are subtotals of income and expenses that management uses in public communications outside the financial statements to explain its view of an aspect of the company’s overall financial performance. They must not be measures specifically required by MFRS Accounting Standards or among the subtotals excluded under the standard.

Companies must explain what each qualifying MPM represents, why management considers it useful and how it is calculated. They must also reconcile the measure with the most directly comparable subtotal listed in paragraph 118 of MFRS 18, or another total or subtotal specifically required by MFRS Accounting Standards. In addition, they must disclose the income tax and non-controlling interest effects of each reconciling item.

This push for clarity is already being emphasized across the profession. The Malaysian Institute of Accountants (MIA) notes that these disclosures will help investors understand management's chosen measures. Similarly, technical guidance from Grant Thornton Malaysia highlights the value of bringing these measures into a single note to the financial statements, while PwC Malaysia points out that the new income statement structure will help investors look beyond broad labels to identify true performance drivers.

Still, MFRS 18 is not a cure for earnings management or selective corporate communication. Management retains judgement, and reconciliation does not make every adjusted measure meaningful. Investors must still examine the adjustments, whether they recur and whether similar discipline applies when results improve or deteriorate.

Companies should prepare now. Finance teams may need to review reporting systems, account mapping and public performance measures. Audit committees should question management’s readiness, while auditors and investor relations teams must understand the changes. Boards and audit committees must look beyond technical compliance and consider whether performance is presented fairly. For Malaysian listed companies, 2026 should be a year of readiness, not waiting. Comparative figures and disclosures cannot be assembled at the last minute.

MFRS 18’s value will depend not only on compliance, but on companies’ willingness to communicate clearly and fairly. Investors deserve to understand not just reported profit, but how management arrives at the figures it celebrates. Will MFRS 18 truly make that conversation more transparent, or will the real test always be how honestly companies choose to tell their story?

Hijat A Jabbar is a professor of accounting at Universiti Utara Malaysia, Kuala Lumpur Campus.