India’s listed companies are preparing for the biggest shake-up in financial reporting in years as Ind AS 118 moves from policy design to implementation, forcing boards, auditors and finance teams to rethink how they classify expenses, define operating profit and explain performance to investors.
India's Ind AS 118 reporting overhaul nears implementation
The change matters because it goes well beyond compliance. By introducing standardised categories and mandatory subtotals such as operating profit and profit before financing and income taxes, the new rule is designed to make corporate results more comparable across India Inc. For investors, that could reduce the noise around self-defined measures such as adjusted EBITDA and operating profit, which often vary from company to company. For management, it raises the bar on disclosures, internal controls and the systems needed to support them.
Auditors say the transition is already becoming a boardroom issue, even though preparedness remains uneven. Deloitte Haskins & Sells audit leader Samir Shah said companies have started discussing transition plans, but the work required will differ sharply by business model and industry. That is especially true under “functional” reporting, where expenses must be classified by activity rather than by nature. Employee benefits and depreciation, for example, may need to be allocated across functions, a process that can be difficult for companies whose cost-centre structures were not built for that purpose.
That complexity is why the rule could affect more than the face of the income statement. Companies may need to revisit finance information systems, internal controls and the performance metrics used in bonus plans and commercial contracts. Sudhir Soni of BSR & Co said agreements linked to self-defined subtotals such as operating profit may need to be amended, which could trigger negotiations with lenders, counterparties or employees if definitions change.
The broader market impact is likely to be mixed. The bull case is that clearer reporting improves comparability, helps analysts build cleaner models and may ultimately reward businesses with transparent margins and disciplined cost allocation. The bear case is that the transition could expose inconsistencies in current reporting, create short-term volatility in reported margins and add compliance costs at a time when many companies are already under pressure from slower growth and tighter margins.
The reform also has a regulatory dimension. The Ministry of Corporate Affairs is expected to consider changes to Schedule III, while SEBI, the RBI and the IRDAI may need to align sector-specific disclosures and reporting formats. That coordination matters because a staggered rollout would leave companies juggling different reporting expectations, while a timely package of notifications would give them a clearer implementation path.
Industry sources say the Indian standard has been finalised and notification is expected soon, though a one-year deferral is also under discussion. A delay would give companies more time to build systems and map their existing line items to the new categories, but it would also widen India’s timing gap with IFRS 18, which becomes effective internationally for annual periods beginning on or after Jan. 1, 2027. For investors, the key question is not just when the rule takes effect, but how quickly companies can translate it into cleaner, more credible earnings communication.
| Entity | Gains | Losses |
|---|---|---|
| Investors | ▲Better comparability | ▼Near-term reporting noise |
| Large listed companies | ▲Clearer earnings communication | ▼Higher compliance burden |
| Auditors and regulators | ▲More standardised reporting | ▼Greater implementation complexity |
| Companies with weak systems | ▲More time if deferred | ▼Costlier transition and control gaps |
