Ind AS 118: Changing the way the numbers speak

Ind AS 118 overhauls financial statement presentation, requiring entities to revisit the structure of the P&L statement and introduce MPM disclosures.

In brief

• Ind AS 118 responds to investor demand for better information about an entity’s financial performance.
• Introduces structured categories for income and expenses in the profit and loss statement, along with new required subtotals to enhance clarity and comparability.
• Requires disclosure of management-defined performance measures in a single note, improving transparency around management’s view of financial performance.
• Strengthens guidance on aggregation, disaggregation, labelling and placement of information to improve the quality and usefulness of financial statement disclosures.

Ind AS 118 is a new accounting standard aimed at improving how companies communicate through their financial statements. Responding to investor demand for clearer insights into financial performance, the standard shifts the focus from merely reporting numbers to how financial information is presented and explained. By strengthening presentation and disclosure principles, it aims to enhance transparency, comparability, and the overall quality of financial reporting.

In April 2024, the International Accounting Standards Board (IASB) issued IFRS 18 to improve communication through enhanced presentation and disclosure in financial statements. To align with this development, the Exposure Draft of Ind AS 118 has now been finalized in India. In accordance with the recommendations of National Financial Reporting Authority (NFRA), Ind AS 118 will be applicable from 1 April 2027. Early adoption from 1 January 2027 has also been proposed for entities preparing financial statements on a calendar-year basis which will help aligning Indian entities with global reporting timelines.

Ind AS 118 introduces a more disciplined structure to the statement of profit and loss by prescribing defined categories and subtotals, improving consistency and comparability across entities. Ind AS 118 introduces three new categories — operating, investing and financing — and requires the presentation of two new subtotals, namely operating profit and profit before financing and income tax, in the statement of profit or loss. A key feature of the standard is the introduction of management-defined performance measures (MPMs), which require enhanced transparency, clear reconciliation to prescribed subtotals, and robust disclosures around management’s view of financial performance. The standard also sharpens principles on aggregation and disaggregation, requiring entities to present information at a level that avoids both excessive detail and obscuring material information. In addition, Ind AS 118 will trigger consequential amendments to other Ind AS, enabling alignment across the financial reporting framework and reinforcing a cohesive approach to presentation and disclosure.

The adoption of Ind AS 118 will materially reshape financial performance reporting, particularly through more structured income and expense classification within the profit and loss statement. A consistent approach to defining and presenting the operating profit subtotal will become central to comparability, requiring entities to revisit long-established reporting practices. These changes place renewed emphasis on high-quality financial statement presentation, supported by clear and purposeful accounting disclosures aligned with the Ind AS 118 disclosure requirements.

Looking ahead, implementation will require coordinated effort across finance, systems and governance functions. Entities will need to evaluate data flows, reporting templates and internal controls to meet updated reporting requirements while maintaining compliance with broader financial reporting standards. Particular attention will be required to ensure that revised disclosures and presentation choices are well-documented and capable of withstanding audit and regulatory compliances as reporting frameworks evolve.

Overall, Ind AS 118 represents a significant accounting standards update that elevates the quality and discipline of corporate financial reporting. By reinforcing transparent presentation and decision-useful accounting disclosures, the standard strengthens the credibility of reported financial information. Successful adoption will depend not only on technical alignment but also on thoughtful execution, enabling entities to communicate performance more clearly in an increasingly complex reporting environment.

Summary

Ind AS 118 enhances how companies present and communicate financial performance in their financial statements. By introducing structured profit and loss categories, new subtotals and greater transparency around management-defined performance measures, the standard strengthens presentation and disclosure practices, improving clarity, comparability, and the overall quality of corporate financial reporting.