IFRS 18 and Ind AS 118: what changes in financial reporting.
IFRS 18 redraws the income statement from 2027
The profit and loss statement is being redrawn. For a calendar-year company, 2026 is already the comparative year.
| Reporting milestone | Timing |
|---|---|
| Comparative year, restated in the new format | 2026 |
| IFRS 18: first year in the new format | Annual periods beginning on or after 1 January 2027 |
| Ind AS 118 mandatory date | 1 April 2027 (proposed) |
Imagine a CFO closing the 2026 accounts. The profit and loss statement looks as it did last year. Next year it will not. IFRS 18, issued by the IASB in April 2024, replaces IAS 1 for annual periods beginning on or after 1 January 2027, and it applies retrospectively, so comparative figures are restated. [1]
For an Indian group, the same change arrives as Ind AS 118. The NFRA recommended it for notification in December 2025, with mandatory application proposed from 1 April 2027. [2] The MCA’s Ind AS amendments of 12 August 2026 did not include it. [3]
Who is affected
- Companies reporting under IFRS.
- Indian companies under Ind AS (proposed).
- IFRS subsidiaries: IFRS 19 also from 2027.
What changes
- Five income statement categories.
- Two new mandatory subtotals.
- Performance measures move into a note.
- Cash flow starts at operating profit.
Profit may stay the same. The question is where each rupee of income and expense now sits.
The same INR 105 crore profit, drawn two ways
Take one company, one year and one profit of INR 105 crore. Only the layout of the statement changes.
Before: IAS 1
| Line item | INR crore |
|---|---|
| Revenue | 1,000 |
| Operating expenses | (850) |
| Share of profit of associate | 20 |
| Interest income | 10 |
| Finance costs | (40) |
| Profit before tax | 140 |
| Income tax expense | (35) |
| Profit for the year | 105 |
After: IFRS 18
| Category | Line item | INR crore |
|---|---|---|
| Operating | Revenue | 1,000 |
| Operating | Operating expenses | (850) |
| Subtotal | Operating profit | 150 |
| Investing | Share of profit of associate | 20 |
| Investing | Interest income | 10 |
| Subtotal | Profit before financing and income taxes | 180 |
| Financing | Finance costs | (40) |
| Income taxes | Income tax expense | (35) |
| Total | Profit for the year | 105 |
Illustration, INR crore. Same figures in both layouts. The two new subtotals are operating profit and profit before financing and income taxes.
What you will notice
105 = 105: profit for the year, the bottom line, does not move. Five categories now group every line, and two new subtotals are required: operating profit, and profit before financing and income taxes. [4]
The profit is the same. What changes is how clearly the statement shows where it came from.
Each P&L line now sits in one of five categories
Take a manufacturer with a factory, a stake in an associate and a bank loan. Each of those now lands in a different category. A line’s category now says what the business does with it.
| What the manufacturer has | Where it now sits | Category description |
|---|---|---|
| Factory: sales and running costs | Operating | The residual category: income and expenses from the entity’s main business activities. |
| Stake in an associate: share of its profit; cash in the bank: interest income | Investing | Returns from assets that generate a return largely independently of other resources, such as associates and joint ventures, and from cash and cash equivalents. |
| Bank loan: interest on borrowings | Financing | Transactions that only raise finance, plus interest expense and the effects of interest rate changes on other liabilities. |
| Profit: income tax on it | Income taxes | Income tax expense. |
| Operations the entity has discontinued | Discontinued operations | Results of operations the entity has discontinued. |
Operating items lead to operating profit. Adding investing items leads to profit before financing and income taxes.
Two subtotals are now required: operating profit, and profit before financing and income taxes. Banks and investment property companies may place some items in operating that others would place in investing or financing. [4]
Group the chart of accounts by activity first. The statement follows.
Category descriptions are summarised from IFRS 18 by the source cited in the publication. [4]
Adjusted profit moves into the notes, with a bridge
Picture a results presentation that headlines “adjusted profit”. Under IFRS 18, that number needs a note and a bridge.
| Question | Today | Under IFRS 18 |
|---|---|---|
| Where it sits | A subtotal used in public communications outside the financial statements. [1] | Disclosed in a single note to the financial statements. [4] |
| What anchors it | Chosen and defined by management. | Reconciled to an IFRS-defined subtotal. [4] |
| What it is | Not required by IFRS. [1] | Called a management-defined performance measure (MPM). [1] |
The illustration: from operating profit to “adjusted”
| Reconciliation | INR crore |
|---|---|
| Operating profit, the IFRS subtotal | 150 |
| Restructuring cost added back by management | +10 |
| Adjusted operating profit, an MPM | 160 |
What qualifies
- A subtotal of income and expenses.
- Used outside the financial statements.
- Not required by IFRS.
Here, the company adds back INR 10 crore of restructuring cost and calls the result adjusted operating profit. If that figure is used in public communications and is not specified by IFRS, it is an MPM. It needs a place in the note, with a reconciliation back to the subtotal the standard defines. The two numbers sit side by side. [1][4]
List every profit measure used in board packs, results releases and investor decks. Each is a candidate MPM.
Cash flow gets a new starting line from 2027
Imagine a cash flow statement that begins with profit after tax. From 2027, the indirect method begins at operating profit.
Illustrative cash flow statement: indirect method
New starting line: operating profit. [5]
| Line item | INR crore |
|---|---|
| Operating profit | 150 |
| Depreciation | 40 |
| Working capital movement | (30) |
| Cash generated from operations | 160 |
| Income taxes paid | (35) |
| Net cash from operating activities | 125 |
| Interest received | 10 |
| Purchase of fixed assets | (60) |
| Net cash used in investing activities | (50) |
| Interest paid | (40) |
| Loan drawn | 50 |
| Net cash from financing activities | 10 |
| Net increase in cash | 85 |
Illustration, INR crore. Interest classified as IFRS 18 requires.
Where interest and dividends go
| Item | Goes to |
|---|---|
| Interest paid | Financing |
| Interest received | Investing |
| Dividends paid | Financing |
| Dividends received | Investing |
For a company without specified main business activities. Comparatives are restated. [5]
Same three headings. Different definitions.
The three cash flow headings keep their IAS 7 definitions. They are not aligned with the income statement categories of the same names. [5]
Until now, many companies could choose where to show interest and dividends. IFRS 18 removes those choices for many companies. For a company without specified main business activities, interest and dividends paid go to financing, and interest and dividends received go to investing. Financial institutions follow the related income or expense in the income statement instead. [5]
Rebuild the cash flow template now. The starting line, and the interest and dividend choices, change.
In India, Ind AS 118 is proposed from 1 April 2027
Take an Indian subsidiary of a parent that reports under IFRS on a calendar year. The parent moves in January 2027. The subsidiary’s dates are still proposals.
Ind AS 118: the road so far
| Date | Development | Status |
|---|---|---|
| January–August 2025 | ICAI exposure draft; proposal sent to NFRA. [2] | Reported milestone |
| 22 December 2025 | NFRA recommends notification. [2] | Recommendation |
| 12 August 2026 | MCA Ind AS amendments: Ind AS 118 not included. [3] | Reported milestone |
| 1 January 2027 | Early adoption for calendar-year entities. [2] | Proposed |
| 1 April 2027 | Mandatory application. [2] | Proposed |
What NFRA said
Ind AS 118 mirrors IFRS 18 without carve-outs, and NFRA considers full convergence appropriate. Its only modification was to the effective date. It also suggested that the MCA consider amending Schedule III of the Companies Act, 2013, and that SEBI review its reporting formats and circulars. [2]
What is still open
In the publication’s source review, the MCA’s 12 August 2026 amendments notified four other changes to Ind AS, effective for periods beginning on or after 1 April 2026, and did not include Ind AS 118. [3] Until it is notified, the 1 January and 1 April 2027 dates remain proposals. [2]
The example in the lead, side by side
| Entity | Standard | First annual period | Status |
|---|---|---|---|
| Parent reporting under IFRS | IFRS 18 | Annual periods beginning on or after 1 January 2027 | Final |
| Indian subsidiary under Ind AS | Ind AS 118 | 1 April 2027, or 1 January 2027 for calendar-year entities that adopt early | Proposed |
Plan on the proposed dates, but watch for the notification and for Schedule III changes.
Beyond IFRS 18: four changes are final, two are still tentative
IFRS 18 is the headline, but not the only change. Picture a finance team that has finished its IFRS 18 plan. The IASB has not finished.
At its September 2026 meeting the IASB tentatively decided that proposed amendments to IFRS 18 would apply retrospectively, with no first-time adopter exemption. The amendments concern taxes charged as a direct substitute for income tax, which would sit in the income taxes category. It set a 120-day comment period and expects to publish the exposure draft in the fourth quarter of 2026. [6]
The 2026–2027 reporting calendar
| Effective or expected | Change | Status |
|---|---|---|
| 1 January 2026 | Electricity contracts (IFRS 9 and IFRS 7). Own-use and hedge accounting for power purchase agreements, with new disclosures. [7] | Final |
| 1 January 2026 | Financial instruments. Settlement-date derecognition, an election for certain e-payment liabilities, and updated disclosures. [7] | Final |
| 1 April 2026, India | Four Ind AS amendments. Notified on 12 August 2026, including India’s versions of the two changes above, for periods beginning on or after 1 April 2026. [3] | Final |
| 1 January 2027 | IFRS 19. An optional standard with reduced disclosures for subsidiaries whose parent reports under IFRS. [7] | Final |
| Q4 2026, exposure draft | Amendments to IFRS 18. Retrospective, with no first-time adopter exemption; 120-day comment period. [6] | Tentative |
| September 2026 meeting | Cash flow statement. How to classify acquisition-related payments and how to disclose non-cash changes. [6] | Tentative |
The two tentative items are not final rules. Watch them, but do not build on them yet.
Six steps to rehearse IFRS 18 on the 2026 numbers
Do not wait for the first set of 2027 accounts. Rehearse the new statements on the 2026 numbers.
- Map every income statement line to operating, investing or financing.
- List every profit measure used outside the accounts.
- Rebuild the cash flow template from operating profit.
- Prepare the comparative year in the new format.
- Check the chart of accounts and reporting systems.
- Track the Ind AS 118 notification and the IASB exposure draft.
A finance team can keep a simple, recurring checklist:
- Where does each line belong?
- Which measures do we quote in public?
- Who owns the cash flow template?
These are not questions to answer once. They should be revisited as the standard, and the dates, settle.
So, the question should not be “what is our profit?” It should be “where does each part of it come from?” That is the difference between a statement that adds up and one that explains. The profit may be the same. The map will not be.
General information only; not accounting advice. Dates for Ind AS 118 are proposals, as reported in the sources cited in this publication.
Sources cited in the publication
- BDO UK, “IFRS 18 Presentation and Disclosure in Financial Statements”.
- Uniqus, “NFRA deliberations on Ind AS 118 and key regulatory developments”.
- KPMG India, “FirstNotes: MCA issues amendments to Ind AS”, 21 August 2026.
- EY India, “Ind AS 118: Changing the way the numbers speak”.
- KPMG US, “IFRS 18: changes to the statement of cash flows”, 2026.
- IFRS Foundation, “IASB Update September 2026”.
- KPMG US, “Q2 2026: new IFRS Accounting Standards and amendments”.
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Preparing for IFRS 18 and Ind AS 118? We’re here to help
IFRS 18 and Ind AS 118 change how results are presented. The work sits in the detail: mapping the chart of accounts, finding every management-defined performance measure, rebuilding the cash flow template and restating the comparative year.
Whether you are an Indian company preparing for Ind AS 118, or the Indian subsidiary of a parent that reports under IFRS, working through the 2026 numbers now gives your team a rehearsal before the first reporting year.
To discuss what the change means for your statements, email [email protected] with the subject line “IFRS 18 Readiness”, or discuss any topic in this publication with our advisory team.
The purpose of finance is not simply to report what happened. It is to create the clarity, control, and forward visibility that help management decide what happens next.
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