The way Indian companies present their P&L is about to change significantly. Ind AS 118, the standard replacing Ind AS 1, restructures the income statement into five mandatory categories, introduces two new required subtotals, and for the first time brings management-defined performance measures like “Adjusted EBITDA” into the audited financial statements.

Effective April 1, 2027. Comparative restatement required. The time to understand this is now, not in 2026.

What is Ind AS 118?

Ind AS 118 serves as India’s counterpart to the global IFRS 18. Its primary objective is to reduce the diversity in how companies present their Profit or Loss (P&L) accounts. While it doesn’t alter the measurement of profit (the bottom line remains unchanged), it significantly alters how that profit is presented to the global audience.

Key Financial Statement Changes

The most noticeable changes will occur in the Statement of Profit and Loss, which will now be divided into five distinct categories:

  1. Operating Category: This category will serve as the default for all income and expenses not classified elsewhere. It provides a comprehensive view of a company’s operational activities.

  2. Investing Category: This category includes returns from assets that generate income independently, such as dividends from shares or rental income from investment property.

  3. Financing Category: This covers interest expenses and income on liabilities such as bank loans bonds and lease liabilities.

  4. Income Taxes Category: This includes tax expenses recognised under Ind AS 12.

  5. Discontinued Operations Category: This reflects the results of operations being discontinued or sold.

New Required Subtotals: To enhance comparability, all companies must now present two new subtotals:

  • Operating Profit or Loss. This will be the profit or loss from the “Operating” category, excluding any financing and tax impacts.
  • Profit or Loss before Financing and Income Taxes. These subtotals will provide investors with a clearer picture of a company’s core operational performance, separate from financing and tax impacts.

Implementation & Timeline

  • Effective Date: Annual reporting periods commencing on or after April 1, 2027.
  • Comparative Information: When the standard takes effect, you will need to restate the previous year (2026-27) figures to align with the new format.

Advantages for Users (Investors & Analysts)

  • Improved Comparability: Currently, two companies within the same industry might define “Operating Profit” differently. Ind AS 118 mandates a consistent structure, simplifying “apples-to-apples” comparisons.

  • Enhanced Transparency in “Management Numbers”: Many companies use non-standard metrics like “Adjusted EBITDA” in press releases. Ind AS 118 introduces Management-defined Performance Measures (MPMs). If a company uses these “alternative” totals in public they must now disclose them in a single note within the audited financial statements and reconcile them back to the official Ind AS totals.

Potential Complications for Companies

While the standard provides clarity, the transition phase presents several challenges:

1. The “Mixed” Presentation Dilemma

Companies face a choice between presenting expenses by Nature (e.g. raw materials and employee costs) or Function (e.g. cost of sales and distribution costs). Ind AS 118 permits a “mixed” presentation if it offers more useful information but demands significant judgement and internal data restructuring.

2. Determining “Main Business Activities”

For most companies, interest is classified as a “Financing” item. However, for banks and finance companies, providing credit constitutes their operating activity. These entities must evaluate their “Main Business Activity” to decide whether interest and investing income should be categorised as Operating.

3. IT System Adjustments

ERP systems currently mapped to Ind AS 1 categories will need reconfiguration to automatically track and categorise expenses into the five new categories.

4. Audit Disclosure Requirements

Auditors will require companies to disclose the rationale behind their categorisation choices, especially for MPMs. This will necessitate more detailed documentation and internal controls around financial reporting.

Case Study Perspective: The “Adjusted Profit” Transparency

Consider a tech startup that consistently emphasises ”Core Operating Profit” in its investor presentations by excluding share-based payments and certain legal costs.

  • Under Old Rules: This “Core” figure existed solely in the presentation deck, often lacking a direct link to the audited profit and loss statement.
  • Under Ind AS 118: This figure is now a MPM. The company must include a note in its audited financials explaining its calculation and, most importantly, reconciling it to the official “Operating Profit” including the tax impact of those adjustments.

Next Steps

This standard promotes more disciplined communication. Companies should start by:

  • Reviewing their current profit and loss structure against the five new categories.
  • Identifying any MPMs used in previous investor presentations.
  • Evaluating whether their internal reporting aligns with the proposed “Operating Profit” definition.
  • Engaging with their IT teams to plan necessary adjustments to financial reporting systems.

The practical implication of Ind AS 118 is not just a reporting change, it is a conversation about how your business defines performance. If your CFO has been presenting a non-GAAP metric in investor calls, that metric now lives in the audited financials, reconciled and explained. That is a significant shift in accountability, and it starts with understanding what the standard actually requires.