Ind AS 118: Navigating the new landscape of communicating financial performance

The National Financial Reporting Authority (NFRA), at its meeting held on 22 December 2025, recommended Ind AS 118 Presentation and Disclosure in Financial Statements (corresponding to IFRS 18 issued by the International Accounting Standards Board) to the Central Government for notification. Along with Ind AS 118, the NFRA has recommended consequential amendments to four other Indian Accounting Standards (Ind AS) for notification. As per the NFRA recommendation, Ind AS 118 and the consequential amendments to other Ind AS are proposed to apply for the financial year beginning on or after 1 April 2027.

Further, the NFRA has recommended that companies preparing financial statements on a calendar year basis may have the option to early adopt Ind AS 118 for annual reporting periods beginning on or after 1 January 2027. This recommendation is particularly relevant for subsidiaries of foreign companies, as it helps avoid misalignment with the parent company's reporting periods, which would be aligned with IFRS 18 effective from 1 January 2027.

If notified as recommended, Ind AS 118 would become effective from 1 April 2027 (or 1 January 2027 for calendar-year entities). It would require restatement of comparative information. Accordingly, entities will need to assess the impact on comparative information and prepare systems, processes and data well before the first year of application. For instance, listed companies will be required to restate comparative figures for their June 2027 quarterly results, including corresponding restated comparatives from the June 2026 quarter onwards. Similarly, companies planning an IPO in FY27 will be required to restate financial information for the preceding three years.

We understand that the standard-setters and regulators in India are also working on other regulatory changes such as revision of Division II and Division III to Schedule III to the Companies Act, 2013 (as amended), i.e., Ind AS Schedule III applicable to non-finance companies and to non-banking financial companies, respectively, and revision of the format for presenting quarterly and half-yearly financial results prescribed under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (as amended) (SEBI LODR). We expect the final Ind AS 118 with consequential amendments as well as other regulatory changes to be notified soon.

¹ This article primarily focuses on Ind AS 118 overview and key outcomes from our perusal of disclosures made by 125+ global companies regarding the potential impact expected to arise from IFRS 18 application. For more detailed understanding of Ind AS 118 requirements, a reference may be made to the publication Applying Ind AS: A Closer Look at Ind AS 118 and the recorded webcast Ind AS 118 – What CFOs and Finance Leaders Need to Know.

Overview of key Ind AS 118 impacts

Ind AS 118 sets out general and specific requirements for the presentation of financial statements and for disclosures in the notes. Given below are key amendments expected to be introduced by Ind AS 118:

Statement of profit and loss

Ind AS 118 requires an entity to classify all income and expenses within its statement of profit and loss into one of five categories: operating, investing, financing, income taxes and discontinued operations. The first three categories are new. These categories are complemented by the requirement to present subtotals and totals for ‘operating profit or loss’, ‘profit or loss before financing and income taxes’ and ‘profit or loss’.

Main business activities

For the purposes of classifying its income and expenses into three new categories required by Ind AS 118, an entity will need to assess whether it has a ‘specified main business activity’ of investing in a particular type of assets or providing finance to customers, as specific classification requirements apply to such entities. Determining whether an entity has such a specified main business activity is a matter of facts and circumstances which require judgement. An entity may have more than one main business activity.

Management-defined performance measures

Ind AS 118 introduces the concept of a management-defined performance measure (MPM) and defines it as a subtotal of income and expenses that an entity uses in public communications outside of the financial statements to communicate management's view of an aspect of the financial performance of the entity as a whole to users. The standard clarifies that subtotals required by an Ind AS are not MPMs and specifically lists some other subtotals that are also not MPMs, for example, 'gross profit or loss (revenue minus cost of sales)' and similar subtotals.

Ind AS 118 requires entities to disclose information about all its MPMs in a single note to the financial statements and lists several disclosures to be made. These include:

• How the measure is calculated.
• How it provides useful information.
• A reconciliation to the most comparable subtotal specified by Ind AS 118 or another Ind AS.

Location of information, aggregation and disaggregation

Ind AS 118 requires aggregation and disaggregation of information to be performed with reference to similar and dissimilar characteristics while keeping the identified roles of the Primary Financial Statements (PFS) and the notes in mind. Since the purpose of the PFS is to provide a useful structured summary, an entity will, by design, aggregate material items on the face of the PFS and then need to disaggregate them in the notes.

Ind AS 118 also includes guidance on determining meaningful descriptions, or labels, for items that are aggregated in the financial statements, and it requires disclosure of further information regarding items labeled as 'other'.

Consequential amendments to other Ind AS

Limited but widely applicable amendments have been made to other Ind AS, most notably Ind AS 7 Statement of Cash Flows, Ind AS 33 Earnings Per Share and Ind AS 34 Interim Financial Reporting.

Ind AS 7 amendments, among other matters, will require all entities to use the operating profit subtotal as the starting point for the indirect method of reporting cash flows from operating activities.

Under Ind AS 34 (as amended), an entity will be required to make disclosures about its MPMs, as defined in Ind AS 118, in the notes to the condensed interim financial statements. Whether similar MPM-related disclosures will be required in the quarterly or half-yearly financial results prepared as per the SEBI LODR will be known once the SEBI notifies the final amendment to the SEBI LODR.

Preparing for Ind AS 118

Ind AS 118 represents a fundamental evolution in financial statement presentation rather than a mere re-labeling exercise. The standard is expected to significantly enhance comparability, transparency and discipline in the presentation of financial performance. Its implementation will require entities to look beyond statutory formats and reassess how performance is defined, measured and communicated. The standard is also likely to drive changes in transaction systems, reporting processes and internal controls to ensure consistent classification and robust disclosures. For all entities likely to be impacted by Ind AS 118, in particular, listed entities and IPO-bound companies, early preparedness is critical to manage regulatory expectations and investor scrutiny.

IFRS 18 (corresponding to Ind AS 118) is applicable globally from 1 January 2027. To understand preparedness and likely impact, we have looked at disclosures made by 128 global companies in their December 2025/latest available financial statements with regard to standards issued but not yet effective. These companies span multiple industry sectors, including advanced manufacturing, banking and capital markets, consumer products, life sciences, oil and gas, insurance, telecommunications and power and utilities.

Based on our review of global companies, we observe that five companies have already adopted IFRS 18. Most other companies appear to have initiated their implementation efforts:

1. 24 companies (approx. 19%) seem to be at an advanced stage of impact assessment. While their evaluation is ongoing as they operationalize IFRS 18, these companies have provided detailed disclosures on the expected impact of adoption.

2. 18 companies (approx. 14%) have disclosed preliminary insights regarding the initial impact expected from IFRS 18 application.

3. 81 companies (approx. 63%) have made generic disclosures on likely IFRS 18 impacts. Though these companies have not given any specific reason for limited disclosure, we presume that this may potentially be for the reason that these companies have made limited progress on impact assessment at the time of publishing the annual report.

As IFRS 18 does not alter the existing recognition and measurement requirements prescribed under current IFRS Accounting Standards, entities have consistently concluded that its adoption is not expected to have any impact on the recognition and measurement of assets, liabilities, income and expenses. Based on a review of the published financial statements of early adopters, together with impact assessments disclosed by other entities, the following key messages emerge in relation to the application of IFRS 18:

• Certain entities have highlighted that operating profit under IFRS 18 is expected to differ from their currently reported operating profit.
• Entities currently presenting Earnings before Interest and Tax (EBIT) may consider replacing them with the newly defined subtotals, namely operating profit or loss and profit or loss before financing and income taxes.
• IFRS 18 requires the share of profit or loss from equity accounted investments (associates and joint ventures) to be mandatorily presented in the investing category. Many entities have identified this as a significant impact area in their initial assessment.

Foreign exchange gains and losses seem to be emerging as common reclassification items arising from IFRS 18 application. Entities have indicated that additional reclassification items continue to emerge as they progress on IFRS 18 application. These items include:

• Gains and losses on hedging instruments.
• Interest income and discounting expenses on long-term receivables.
• Interest expense on deferred payment liabilities.
• Income and expenses pertaining to investment properties.
• Assessment of the Specified Main Business Activities (MBA) seems to be one critical judgement area for certain entities. These entities continue to evaluate whether they undertake a specified Main Business Activity, considering their specific facts and circumstances.

• Many entities have stated that they are actively identifying MPMs through comprehensive reviews of all external communications. Few entities have made preliminary identification of MPMs such as EBITDA, EBIT, Adjusted EBIT, Adjusted Operating Profit and Business Gross Margin.
• Several entities have indicated changes to the statement of cash flows arising from consequential amendments to IAS 7.
• To deal with all aspects of IFRS 18 adoption in a comprehensive manner, certain entities have specifically stated that they have formed a steering or cross-functional committee on this matter.
• Certain entities have also indicated changes to the information system for data segregation and IFRS 18 compliance.

Call for action

Ind AS 118 marks a meaningful advancement in financial reporting, enhancing how performance is presented and communicated. Beyond presentation changes, it offers organizations an opportunity to improve clarity, consistency and transparency for stakeholders.

While the changes may touch areas such as data, systems, processes, controls and people, they also provide a chance to strengthen reporting frameworks and better align internal metrics with external communication.

Early assessment of the impact will help organizations implement any required updates in a structured and efficient manner.

A proactive and well-planned approach—bringing together teams from financial reporting, legal and investor relations—will support a smooth transition.

Overall, Ind AS 118 enables organizations to enhance the quality and relevance of their financial reporting while creating long-term value.