Ind AS 118 Introduces New Financial Performance Presentation Framework for Indian Entities

What Happened

The Institute of Chartered Accountants of India (ICAI) has notified Ind AS 118, a new accounting standard designed to establish principles for the presentation of financial performance that extends beyond the conventional profit and loss framework. This standard aligns with the international standard IFRS 18 (Presentation of Financial Statements), which was recently issued by the International Accounting Standards Board (IASB).

Ind AS 118 introduces a refined structure for presenting operating and non-operating elements of financial performance, requiring entities to clearly distinguish between recurring operational activities and non-recurring or exceptional items. The standard mandates enhanced disaggregation of income and expense line items, providing stakeholders with greater transparency into how different business segments and functional areas contribute to overall profitability.

The standard applies to all entities preparing general-purpose financial statements under Ind AS, with applicability phased based on entity classification (listed companies, large unlisted entities, and other entities on different timelines). The notification prescribes specific effective dates, with most entities expected to adopt from financial year 2027-28 onwards, though early adoption is permitted.

Why It Matters

For Indian businesses and their finance teams, Ind AS 118 represents a material evolution in financial statement presentation requirements with several strategic implications. The standard moves beyond the prescriptive format-based approach that has historically characterized Indian reporting, introducing a more principle-based framework that prioritizes decision-usefulness to financial statement users.

The standard's emphasis on performance reporting granularity directly addresses a long-standing gap in investor communication. By requiring entities to present performance metrics in a manner that reflects how management internally assesses the business, it enhances comparability and reduces the information asymmetry between preparers and users. This is particularly significant for listed entities, where institutional investors and analysts increasingly demand standardized, granular performance data for valuation and credit assessment purposes.

For large corporates with complex operational structures—including multinational enterprises operating in India—the standard creates both compliance obligations and strategic opportunities. The requirement to disaggregate performance metrics by operational function and geographic segment brings Indian practice into alignment with global institutional investor expectations. Simultaneously, the standard introduces potential complexity in financial system design, data architecture, and consolidation processes, particularly for entities currently reliant on legacy reporting systems.

The regulatory rationale is equally important: ICAI and the Ministry of Corporate Affairs have positioned Ind AS 118 as foundational to India's objectives of enhancing capital market transparency and maintaining compatibility with global financial reporting frameworks. This supports India's broader financial system modernization agenda and reinforces convergence with IFRS standards—critical for cross-border capital flows and investor confidence.

Practical Impact

For Chief Financial Officers and finance teams, implementation of Ind AS 118 will require substantive changes to financial reporting processes. Systems and controls will need redesign to capture performance data at the required level of disaggregation. Many entities will need to implement or upgrade ERP systems, general ledger architecture, and consolidation tools to systematically produce performance statements compliant with the standard's requirements.

Audit and compliance functions face corresponding expansion. External auditors will need to develop new testing procedures and substantiation protocols for the disaggregated performance metrics. Internal audit teams will be required to assess the design and operating effectiveness of controls over new data collection and reporting processes. Tax and regulatory compliance functions must monitor the interface between Ind AS 118 presentation requirements and tax filing obligations, which may not automatically align.

For listed entities and large corporates, early preparation is strategically prudent. Organizations should commission diagnostic assessments of current financial reporting infrastructure, identify system gaps, and develop phased implementation roadmaps. Training of accounting, FP&A, and reporting teams should commence well before the effective date to ensure competency in applying the new standard.

Small and medium entities below the prescribed size thresholds should monitor developments and assess whether voluntary early adoption offers competitive advantages in capital raising or stakeholder communication. The standard's alignment with global frameworks may facilitate access to international financing or merger and acquisition activity.

Key Takeaways

• →Ind AS 118 becomes effective for most entities from FY 2027-28, requiring comprehensive redesign of financial reporting systems, GL architecture, and consolidation processes to capture and present disaggregated performance metrics.
• →Listed entities and large corporations should initiate diagnostic reviews of current reporting infrastructure immediately, including ERP capabilities, data architecture, and control frameworks, to identify implementation gaps and phasing requirements.
• →The standard mandates clear separation of operating and non-operating performance items, enhancing transparency for investors and analysts; finance teams must develop new reporting protocols and support structures to sustain this level of granularity.
• →External and internal audit functions will require revised procedures and testing protocols for assessing the accuracy and completeness of disaggregated performance data; early staff upskilling is recommended.
• →Tax and regulatory compliance teams must monitor the interface between Ind AS 118 presentation standards and tax reporting obligations, as alignment cannot be assumed, particularly for items classified as exceptional or non-recurring.

Disclaimer: This update is for general information only and does not constitute legal, tax or professional advice. Regulatory positions may change. Please consult APRA & Associates LLP for advice specific to your business. Contact us.