IND AS 118 / IFRS 18 — Presentation and Disclosure in Financial Statements Explained

IND AS 118 is India's forthcoming standard on the presentation and disclosure of financial statements, expected to be based on IFRS 18 — the biggest change to how the profit and loss statement looks in over two decades. It replaces IND AS 1, but unlike most new standards, it changes almost nothing about how income and expenses are recognised or measured. What it changes is how every P&L in the country will be structured, sub-totalled and disclosed.

If you prepare, audit, or read financial statements, IND AS 118 affects you directly — every listed company's income statement will carry two new mandatory subtotals, income and expenses will be sorted into defined categories, and — for the first time — "adjusted EBITDA" style measures that companies use in investor calls will have to be reconciled and disclosed inside the audited financial statements themselves.

1. What is IND AS 118 and Why Does it Matter?

IND AS 1 currently gives entities wide discretion over how they structure the statement of profit and loss — beyond a short list of required line items (revenue, finance costs, tax expense, profit or loss), companies choose their own subtotals, labels and ordering. That flexibility is exactly the problem IND AS 118 is designed to fix.

Analysts and auditors have long complained that this discretion makes it hard to compare one company's "operating profit" with another's — because each may define it differently, include or exclude different items, and place them in different parts of the statement. IND AS 118 responds with three structural changes:

• Defined categories for every income and expense item — operating, investing, financing, income tax, and discontinued operations
• Two new mandatory subtotals — "operating profit" and "profit before financing and income taxes" — that every entity must present, in a consistent way
• Mandatory disclosure of "management-defined performance measures" — the non-GAAP metrics companies already publish in earnings calls and MD&A, now required in the notes with a formal reconciliation

2. Status and Expected Effective Date in India

Every past IND AS built on an IFRS has carried India-specific carve-outs or timing differences — IND AS 116 tracks IFRS 16 closely, while IND AS 117 (based on IFRS 17, effective globally since January 2023) is still awaiting notification. Expect the same pattern here: the core mechanics below will very likely carry through largely unchanged, but exact line-item labels, disclosure thresholds and effective dates in the final IND AS 118 could differ from IFRS 18.

3. The Five Categories of Income and Expenses

Under IND AS 118, every item of income and expense in the statement of profit and loss must be classified into one of five categories. This classification — not company preference — determines where an item sits and which subtotal it falls above or below.

4. Classification Rules — Operating, Investing, Financing

The classification test is not about the account name — it's about the role the item plays relative to the entity's main business activities. A few worked classifications make the boundary clearer:

Note the NBFC row: because lending is its main business activity, both the interest income earned on loans and the interest expense on the borrowings that fund that lending are classified as operating — the "spread" the business is built on stays entirely above the operating profit line. This is one of the most consequential classification calls entities will need to document and justify to auditors.

5. Two New Mandatory Subtotals

IND AS 118 requires every entity to present two new subtotals on the face of the statement of profit and loss, in addition to the existing "profit or loss" total:

Entities may still add their own additional subtotals (like the MPMs discussed below), but these two — operating profit and profit before financing and income taxes — must appear on the face of every statement of profit or loss, calculated on a consistent, comparable basis across all Indian entities applying the standard.

6. Worked Example: P&L Before and After IND AS 118

Facts: Vindhya Industries Ltd, a manufacturing company, reports the following for FY 2027-28 (illustrative figures, ₹ lakh): Revenue ₹5,000; Cost of sales ₹3,200; Employee costs ₹600; Other operating expenses ₹350; Share of profit from an associate ₹80; Interest income on surplus FD ₹40; Interest expense on term loan ₹190; Interest on lease liabilities ₹25; Income tax expense ₹180.

7. Management-Defined Performance Measures (MPMs)

This is arguably the most consequential change for listed companies. An MPM is any subtotal of income and expenses that management uses in public communications outside the financial statements — earnings call scripts, press releases, investor presentations, MD&A — to communicate its own view of financial performance, and which is not one of the subtotals specified by the standard (like "adjusted EBITDA," "underlying profit," "core operating profit," or "profit excluding exceptional items").

Today, these measures live outside the audited financial statements, typically unaudited and inconsistently reconciled. IND AS 118 pulls them inside the financial statements. Every MPM must now be disclosed in a single note with:

• A description of the measure and why management believes it provides useful information
• How the measure is calculated
• A reconciliation to the most directly comparable IND AS-specified subtotal (e.g. operating profit, or profit for the period)
• The income tax effect and non-controlling interest effect of each reconciling item
• An explanation of any changes to the measure or its calculation from the prior period

8. Aggregation, Disaggregation and the End of "Other"

IND AS 118 introduces explicit principles for when items should be aggregated together versus shown separately, aimed squarely at the practice of burying large, dissimilar amounts inside a vague "Other expenses" line:

• Items with shared characteristics (nature, function, measurement basis) may be aggregated; items that differ should be disaggregated and separately labelled
• A residual "other" line should only be used for items that are individually immaterial — if a material item doesn't fit an existing line, it needs its own line, not a spot inside "other"
• Entities presenting operating expenses by function on the face of the statement (e.g. "cost of sales," "distribution costs," "administrative expenses") must now also disclose specified by-nature information in the notes — at minimum, employee benefits expense, depreciation and amortisation, and impairment losses

9. Changes to the Statement of Cash Flows

Two changes flow through from the new P&L structure into the cash flow statement:

10. IND AS 118 vs IND AS 1 — Key Differences

11. Transition Requirements

IFRS 18 requires retrospective application in line with IAS 8, including a full restated comparative period and transition disclosures explaining the effect of reclassification on each line item. If IND AS 118 follows this approach — as prior IND AS convergences typically have — entities preparing financial statements in the year of first application should expect to:

• Restate the immediately preceding comparative period's P&L into the new five-category structure
• Disclose a reconciliation showing how each previously reported line item maps into the new categories and subtotals
• Reassess and formally document the operating/investing/financing classification of every recurring income and expense item, including borderline cases like interest income for entities with treasury operations
• Identify and formalise every MPM currently used in investor communications, and build the audit trail needed to support its reconciliation note

12. How CFOs and CAs Should Prepare Now