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Tune in to our latest podcast where senior EY professionals decode Ind AS 118, a new accounting standard, which is set to change how financial performance is interpreted and presented. Jigar Parikh and Devesh Prakash, Partners, FAAS, EY India, discuss how Ind AS 118 is not just an accounting update, but a strategic and transformative change for businesses. The discussion also explores key changes to the profit and loss statement, management‑defined performance measures, and enhanced aggregation and disclosure requirements. With implications spanning governance, technology, controls and investor relations, discover why early preparation will be important for companies navigating the transition to Ind AS 118.
Key takeaways
Ind AS 118 aims to drive greater comparability, consistency and transparency in financial performance reporting.
One of the key changes under Ind AS 118 is the restructuring of P&L account, with clear operating, investing and financing classifications.
Management‑defined performance measures (MPMs) will become strategic choices, requiring robust governance, improved disclosures and clear communication with stakeholders.
Implementing Ind AS 118 will require changes across ERP systems and internal processes, not just accounting policies.
Early preparation will be important, as comparative information, judgment‑heavy classifications and technology preparedness will determine smooth transition and timely compliance.
Unlike earlier industry‑specific standards, Ind AS 118 is all‑pervasive, applying consistently across companies and sectors.
Devesh Prakash
Partner, Financial Accounting Advisory Services, EY India
For your convenience, a full text transcript of this podcast is available on the link below:
Hello everyone. My name is Jigar Parikh, Partner with Financial Accounting Advisory Services. In this podcast, we are going to cover a latest amendment, which is likely to come into effect from 1 April 2027 – Ind AS 118, which deals with presentation of financial statements. It is based on International Financial Reporting Standards (IFRS) 18, which is likely to be effective globally from 1 January 2027. To give us more insights and implications on it, I have Devesh Prakash with me. He is a Partner with Financial Accounting Advisory Services, EY India.
Welcome, Devesh.
Devesh
Thanks, Jigar, for the opportunity.
Jigar
There has been a lot of buzz around Ind AS 118. What we understand is that the Institute of Chartered Accountants of India (ICAI) has already issued exposure draft and National Financial Reporting Authority (NFRA) has also approved it and has recommended it to the central government. So, what do you think when is it likely to become effective in India?
Devesh
The present version of the draft that is approved by NFRA states that it should come into effect from 1 April 2027. However, because there are various companies in India which are subsidiaries of global organizations that are following IFRS, and since that is effective from 1 January 2027, they are giving an option of early adoption to those companies. If they want to adopt, they can adopt it from 1 January 2027.
Jigar
True. But is it fair to say that even Ind AS 118 has to be in sync with Schedule III of the Companies Act, 2013, which drove the presentation of financial statements for the companies? Will it undergo a change? Also, listed companies have to give quarterly results and annual results in the format prescribed in Listing Obligations and Disclosure Requirements (LODR) by Securities and Exchange Board of India (SEBI). Will any changes be required for Schedule III and SEBI requirements?
Devesh
That is right, Jigar. Because companies need to comply both SEBI LODR requirements as well as Indian Companies Act, 2013 requirement and it will not suffice to change only the accounting standard, it has to change holistically. So, from that perspective, all three changes have to coincide with each other. So, from that perspective, the Accounting Standard, which is Ind AS 118, has to change. From that perspective, the Indian Companies Act, 2013 Schedule III also has to undergo change and SEBI LODR should also change because all have to be in sync.
Jigar
Looking deeper into Ind AS 118, is there any significant change or is it old wine in new bottle? What are some key changes which you think audience should focus on?
Devesh
I do not think there should be any worry about it, but there are changes which are significant in nature. This whole Standard took about 10 years to develop, so from that perspective, a lot of thinking has gone into it. Before talking about the key changes, we need to understand what the purpose of this change is. The purpose of this change is to bring in comparability within and across industries, while bringing greater consistency to financial reporting, which currently shows significant diversity. And from these changes’ perspective, there are three significant changes which I can bucket. The first one being in the income statement or Statement of Profit and Loss (P&L) - companies need to do a different subtotal and that could lead to significant efforts from the company perspective. Second is management defined performance measures, which also have to undergo a significant thought process. It is not only an accounting change, but it is very strategic in nature as to what you are conveying to the investors and readers of financial statements. So, it can lead to a value accretion activity for the company. And third is the aggregation and disaggregation and labeling of the financial statements and ensuring that there is consistency and transparency in what is getting disclosed.
Jigar
Let us talk about each of those changes in detail. If you look at the financial statements, it comprises of balance sheet, P&L, cash flow, and Notes to Accounts and I think Statement of Changes in Equity. Are all five getting impacted or only one or two?
Devesh
Primarily, the most significant change it is bringing is in the P&L statement, followed by the changes in aggregation and disaggregation, which could impact all sets of financial statements and also the notes, because it has to be disclosed and over and above, to the extent of changes in P&L statement, the cash flow is also undergoing a change. There is going to be amendment in the Standard with respect to cash flow. So, in that respect, if you look at it holistically, everything is getting impacted. And just to bring in the context, changes in the previous Standards were very industry-oriented, but this is all pervasive. It is applicable to all the companies.
Jigar
Is it fair to say that the most significant change is in the P&L? That is something which is really changing. Everyone seems to be saying that now P&L also will look like cash operating, investing, financing, income tax, discontinued operations. Is it that the classification will now exactly align with cash flow statement, or is it still that the principles are different?
Devesh
Ironically, although the Standard initially wanted it to align from the P&L Statement with the cash flow, some alignment has been achieved, but in totality, it will not be same. So, whatever is operating and investing and financing in the P&L Statement may not be exactly marrying with what you will disclose under cash flows.
Jigar
From an implementation perspective, what are some of the judgment areas which companies should really focus on? Because generally, when you deal with presentation and disclosure, companies say it is okay, it is normally just P&L which is the case. Do you foresee any significant judgment areas or, what we see implementation challenges in going and really transitioning to this new framework?
Devesh
You talked about the fact that P&L statement will have three major captions. Although there are five required captions and what is bringing in change is having the operating defined separately, investing defined separately and financing defined separately. There could be two types of changes –– one is the technical accounting changes, which will impact the area of judgment, and there could be some areas which could be in the cusp of the two as in required judgment. I will take one common example, which is the foreign exchange gains or loss. It gets captioned under other income or expense, as the case may be. But now the Standard requires that the same line item has to be bifurcated between operating, investing and financing.
To give you an example, if there is a foreign exchange gain or loss with respect to receivables, in that case it will go into operating and foreign exchange gain loss, which is arising of the investing activity will go into investing and for example, if there is a foreign exchange gain loss on borrowing, which is related to financing will move into financing. So, same line item which was earlier clubbed as one has to be bifurcated and I will talk about the second aspect which is the implementation of it, which is the technological aspect of it is - how do we capture all these foreign exchange gain and loss separately to make sure that it gets into the right bucket? So, that is a bigger challenge which companies need to grapple with.
Jigar
Based on the example you just shared, it appears that as we peel the onion further, we begin to uncover more nuance and practical implementation challenges. Another related area is the presentation of expenses in the P&L. Globally, some companies present expenses by nature, while others follow a functional classification. Our understanding is that Ind AS 118 continues to allow this choice. Is that correct? Does the Standard permit companies to present expenses either by nature or by function under the P&L?
Devesh
In the current version of the Standard, what it says is that a company can choose nature-wise or function-wise or mix of the two. So, in that case, companies have option of choosing three options to pick up whatever they think will be most representative of their financial performance.
Jigar
Okay, but is that a free choice or will it be based on some consideration? Is that an accounting policy choice or company need to really factor in like industry practice the way they really look at the performance, the profitability, the way they manage is that a key consideration or you just can pick and choose anything?
Devesh
When it comes to judgment like this, companies look through their global benchmark, as in what is getting reported by their peer groups so that they are more comparable. So, from that perspective, of course, the internal accruals and generations of income and expenses have to be looked into. But overall, companies – when it comes to this kind of strategic discussions or decisions –look through what is getting reported by the peer group so that they are comparable.
Jigar
It seems that there are a few operational challenges, significant estimate judgment with respect to classification of income and expenses. Before we move on to another important topic of Management-defined Performance Measures (MPMs), one key aspect, which I want to clarify: is there any change with respect to one, recognition and measurement? And second, is there any change in statement of changes in equity or Other Comprehensive Income (OCI) classification? Because that will be important since we talked about P&L, cash flow, note, but statement of changes in equity and statement of OCI are also important. Is there any change in that? Also, are there any recognition and measurement which is coming out of this Standard?
Devesh
This Standard is primarily on presentation and disclosure; it does not touch upon recognition and measurement and similarly Statement of Changes in Equity (SOCIE), as we call it. So, all of that is not within the purview of the big changes which are happening under this Standard.
Jigar
It is a relief to know that at least something is continuing. Now, let us look at management performance, the defined measure. Historically, we are not used to seeing non-GAAP measures entering financial statements. In fact, there is a lot of reluctance and regulators generally do not allow anything which is non-GAAP entering into financial. In fact, in the US, SEC has very stringent rules on that part. So, this seems to be a surrogate way of non-GAAP getting an entry into financials. So, will all sorts of non-GAAP be now regarded as management defined performance measure or only a subset of that will be considered as a management-defined performance measure, and which will be permitted to be presented in the financials?
Devesh
The way the current Standard is defining MPM is that it has to be a subtotal, and the subtotal is also not required by the Standard or exempted by the Standard. And third aspect is that it has to be publicly disclosed.
Jigar
But when you say subtotal, is it subtotal of income and expense?
Devesh
Yes.
Jigar
So, these are the three. Give some examples, which generally we see in annual reports. Let us say customer churn rate, or you can call it revenue across segments, or number of subscribers – all those things if I understand, since they are not subtotal of income and expense will not be regarded as management defined performance measure.
Devesh
Correct.
Jigar
What happens if there is something considered as management-defined performance measures? What does it mean for those who prepare financial statements? Can you share some thoughts around that part of it?
Devesh
Firstly, there is a strategic aspect of it, which is why the company believes that a particular MPM will depict the financial performance of the company and then comes the accounting aspect from the preparer’s perspective. Earlier, a company used to disclose, and it was not subject to audit because it was not coming out of accounting standard. So, now all this is subject to audit requirements, which means that for whatever you are disclosing, there has to be backup of all the numbers available or disclosed by the company.
Secondly, there are specific disclosure requirements under this Standard. The company has to put at one place within the financial statements defining certain aspects, the most important being – why of MPM is required, then how the MPM is calculated. Then there has to be a reconciliation between the most relevant subtotal already presented in the financial statements and a reconciliation between MPM and that subtotal, also defining what is the implication from the perspective of taxes and non-controlling interest and how that is calculated and over and above, if there is MPM change that also has to be disclosed. So, it comes with lot of disclosure requirements, which are all subject to audit.
Jigar
MPMs must be disclosed in one place, without cross‑references, allowing users to clearly see all information together.
There will be a reconciliation with the GAAP measures. That is understandable. It is a good change because then readers at least will be able to appreciate management perspective as well as reconciliation with GAAP. One, is it fair to say that this is only an accounting change or are there much larger changes? Also, you mentioned earlier about technology changes, but what do you think will be other business impact? If you were to summarize for the audience that it is not only an accounting change but there could be other business implications, what will be your message?
Devesh
It has far reaching implications and first is the strategic change. For example, which MPMs do you need to disclose? How will it be impacting the readers of financial statements? How will it impact the valuation of the company? And how will it compare with the other peer groups already, where financial information is publicly available and then how do you communicate with the board and how do you communicate with investors? So, there are a lot of strategic aspects which have to be dealt with.
Over and above the implementation perspective, if we look at it, the company also needs to change its control procedures because all the SOPs will undergo a change, because this is a change which will be happening across the financial statements.
And then, the third aspect would be the technological changes which could lead to change in the ERP requirements. The example I gave on the foreign exchange gain or loss. So, ERP has to undergo a change. Now you will have to have foreign exchange gain loss defined for each caption. So, there will be a change in the chart of accounts and similarly, how do we capture all this information to make sure that it is auditable as well. So, this will require technological change and then this is also a people’s change because you need to train people so that they understand the nuances of this Standard. As you rightly said, it is like an onion - as you peel, you will get to know more - and the devil lies in detail.
Jigar
Historically, whenever a new Standard comes, people try to wait. And considering that till now, it has not been even issued or finalized by NFRA, even though it has been recommended, the central government approval will take some time considering Schedule III changes are also required. So, it will have to pass through the legislative procedure, which will perhaps happen in monsoon session. What is your advice? Should people wait for those amendments to be issued, or should they start early in that way because it seems that it is applicable in 2027-28? But then why should they really start so early? Should they not wait for it?
Devesh
I will give you a global example. IFRS 18 was announced in 2024, and they wanted this change to be effective from 2027. So, they gave three years’ time for preparation. It was given from the perspective that the Standard setter got a lot of input from the companies that need a lot of time to prepare for it. Similarly, from the Indian perspective, the Indian companies also need a lot of time to prepare for it. The second aspect is that although it is applicable from 1 April 2027, one needs to disclose comparative information, which means that you will have to go one year back. From that perspective, and also, as we discussed, the fact that there are a lot of changes which require judgment, lot of changes which require changes in your technology aspect, ERP, etc. So, the sooner businesses start, they will understand or detect the challenging aspects early.
Jigar
I completely agree. In 2026, that aspect should not be lost out in the preparation because even the comparative parts needs to be disclosed and especially for listed companies, as they will also have to give competitive quarters information, as per the new framework. So, early preparation certainly helps. And that leads me to another question. How should IPOs prepare for this change? Does it have any bearing? Because in an IPO document you give three years’ financial statements. This is applicable from 2027-28 onwards. Do IPO preparers need to worry about the past financial statements?
Devesh
From IPO preparation perspective, when they get listed and post listing, they will be subject to this requirement and changes that they need to disclose, and it will have a broader impact on their valuation. They should start early and think about it, because MPM disclosure is going to be significant from the valuation perspective.
Jigar
The way I understand, there is a three-year requirement when you have to apply the latest Accounting Standard for IPO. So, if anyone is really putting financial information after 2027-28, that means they are going with June 2027 numbers in their offer document. Then would it not be fair to say that they will have to then restate the entire P&L and everything as per Ind AS 118 for all three years? Is that correct?
Devesh
That is a great point, Jigar, because in that case, for any other company, it is one year comparative, but in their case, it will be three years.
Jigar
So, this is going to be a big change –– a transformative change. It looks small but it has a lot of impact. Thank you, Devesh, for giving this useful insight and hope it will really help companies plan for their transition journey to Ind AS 118.
Thank you, audience, for your patient listening and I hope you received good insights on the challenges in transitioning to Ind AS 118, particularly areas that require planning with respect to expenses within the buckets of operating, investing, financing. Assess what the various areas of impact are. Is that a change that is required in chart of accounts and therefore connect with your ERP implementation team to help you manage those things on a timely basis? And as Devesh rightly said, on management defined performance measure – it is a strategic decision. That is something which should be thought through well before you make a choice about what will be regarded as management defined performance measures and what gets disclosed in the financial statements.
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