India’s corporate accounting and financial reporting practices are preparing for an important change. The proposed Ind AS 118 (India’s local version of global IFRS 18) is expected to bring changes to how companies present their income, expenses and profits in financial statements.
For commerce students, B.Com and BBA graduates, CA, CMA and ACCA aspirants, this is a useful development to understand. Financial reporting is an important part of many accounting and finance roles, and knowing about new accounting standards can help you prepare for the expectations of the industry.
So, what exactly is Ind AS 118, and why is it receiving attention from companies, auditors and finance professionals? For commerce students and young professionals, this isn't just a technical rule change, it is a massive career opportunity to learn a vital skill before it hits every boardroom.
What Is Ind AS 118?
Ind AS 118 is India's version of the international accounting standard IFRS 18, which focuses on the presentation and disclosure of information in financial statements. It is intended to make financial reporting clearer and improve the way companies communicate their financial performance.
IFRS 18 is scheduled to take effect internationally for annual reporting periods beginning on or after 1 January 2027. In India, implementation of Ind AS 118 has been proposed from 1 April 2027. However, the final notification from the Ministry of Corporate Affairs (MCA) and related changes to Schedule III of the Companies Act are still awaited.
The proposed changes are already encouraging companies to review their financial reporting processes and prepare for the transition.
Change 1: New Categories and Mandatory Subtotals
A New Structure for the Profit and Loss Statement
For years, companies have had immense flexibility in how they present their income and expenses under older standards like Ind AS 1. While two companies might both report a healthy profit, the way they structured their P&L statements often looked completely different. Finding a uniform "operating profit" to compare two competitors side-by-side was often confusing for investors and analysts.
Ind AS 118 fixes this by introducing a strict, standardized architecture for the Statement of Profit or Loss. It doesn't change the underlying economics or cash generated by a business, instead, it completely transforms how financial performance is communicated.
The profit and loss statement will group income and expenses into categories. The proposed standard introduces these main categories:
Category | What goes in it (for most non-finance companies) |
Operating | Income and expenses from a company's main business activities. |
Investing | Income and expenses from investments and other assets that generate returns independently of the company's main operations. |
Financing | Income and expenses related to funding, borrowings and other financing activities. |
Income taxes | Tax expense or income |
Discontinued operations | Results of businesses being closed or sold |
It also introduces defined profit subtotals, including operating profit and profit before financing and income taxes and profit or loss for the year.
Change 2: Expenses by Nature, Function, or Both
Operating Expenses: By Nature, By Function or Both
Ind AS 118 will also change how companies present their operating expenses. Companies can show their expenses in different ways:
By nature: Based on what the expense is, such as employee benefits, depreciation, rent and raw materials.
By function: Based on the business activity the expense supports, such as cost of sales, distribution, research and development, marketing, and administration.
A mix of both: A combination of nature and function, where appropriate.
For example, a company's employee costs may be divided across different functions, such as production, sales and administration. Depreciation expenses may also need to be allocated to the relevant functions.
This requires companies to maintain clear and consistent rules for allocating expenses. Businesses without proper cost-centre structures may need to review their accounting processes and update their ERP systems.
Finance teams will need to understand not just how much a company spends, but also where and why the expenses occur. This makes cost accounting, financial analysis and reporting skills increasingly useful.
Change 3: Bringing Transparency to Management-Defined Performance Measures (MPMs)
Clearer Disclosure of Performance Measures
Companies often use financial measures such as adjusted EBITDA to explain their performance to investors. However, the meaning and calculation of these measures can vary between businesses.
Ind AS 118 introduces disclosure requirements for certain Management-defined Performance Measures (MPMs) used in public communications about a company's financial performance.
Ind AS 118 introduces strict discipline here:
Any custom performance measure used publicly by management (like Adjusted EBITDA or Adjusted Operating Profit) must be formally disclosed.
Companies will need to explain these measures and reconcile them with the relevant standardised profit subtotals presented in their financial statements.
For instance, if a business entity uses an adjusted performance measure, then it is crucial for the user to be able to interpret that measure in relation to the standard financial measures.
Clearer disclosures will help the investors in knowing how the company measures its performance. They can also make it easier to identify differences between reported figures and management's own performance measures.
What Does Ind AS 118 Mean for Finance and Audit Professionals?
These changes are not restricted to accounting standards or financial statements alone. They may also have an impact on the daily activities of finance professionals.
Here are some areas where professionals may need to strengthen their knowledge:
Finance professionals: Gain an understanding of the newly revised P&L accounts, review expense categorisation, and make the required modifications to the reporting systems.
Accountants: Increase their skills on financial statements preparation, cost allocation, and disclosure.
Auditors: Review the processes of reporting, internal controls, documentation, and disclosures.
Financial analysts: Gain an understanding of the new profit subtotals.
CA, CMA and ACCA students can benefit from this knowledge about IFRS 18 and Ind AS 118 to develop a better understanding of present trends in accounting.
Why It Matters for Your Career
Develop these practical accounting and financial reporting skills now so you can get an understanding of how the changes are likely to operate in real-world businesses, and why they are significant to financial reporting, statutory audit and analysis of financial statements. Understanding how these statements interrelate gives you a competitive advantage.
Here is what to do now:
Financial statement preparation: Know how to create and interpret P&L accounts, balance sheets and cash flow statements.
Financial analysis: Learn how to analyse operating profit, gross profit, EBITDA and other important financial indicators.
Cost accounting: Know how expenses are classified, allocated and analysed across business functions.
Accounting software and ERP: Gain practical exposure to accounting software, Excel and business reporting systems.
Accounting standards: Follow updates to Ind AS and IFRS and understand how they affect actual financial statements.
The key is to connect theoretical accounting knowledge with practical business situations.
Build Practical Finance Skills Beyond Textbooks
Want to bridge the gap between college theory and corporate accounting? Special40 offers an intensive, placement-focused practical finance program in Kochi designed for commerce graduates. Learn Practical Accounting, corporate financial reporting, ERP and MIS tools, Advanced Excel, TallyPrime, Zoho Books, GST return filing, and corporate communication directly under experienced Chartered Accountants.
Explore Special40’s Finance Career Accelerator Program Today!
Conclusion
Ind AS 118 is an important development in India's financial reporting landscape. Its proposed changes to Profit & Loss statement, expense classification and performance disclosures may affect how companies prepare and communicate their financial results.
For commerce students and aspiring finance professionals, knowing these developments early can be an advantage. Along with academic knowledge, practical experience in accounting, taxation, financial reporting and business analysis can help you prepare for the changing requirements of the finance industry.
FAQ
What is the main purpose of Ind AS 118?
The main purpose of Ind AS 118 is to improve how companies present and disclose financial performance. It introduces defined categories, profit subtotals and disclosure requirements to make financial statements clearer and more comparable.
Is Ind AS 118 the same as IFRS 18?
Ind AS 118 is India's version of the international standard IFRS 18. It is designed to bring Indian financial reporting closer to the global requirements, subject to the final Indian notification and applicable modifications.
When will Ind AS 118 be implemented in India?
Implementation has been proposed for annual reporting periods beginning on or after 1 April 2027. The final MCA notification and related Schedule III changes are still awaited, so the timeline should be checked against official updates.
What is operating profit under Ind AS 118?
It is the profit from a company's main business activities, shown as a required subtotal. Income from investments and the cost of financing are shown in their own categories.
Does Ind AS 118 change the actual profit or loss of a company?
No. Ind AS 118 changes the presentation and disclosure of financial items, not the underlying business economics or the final net profit number.