Here’s why businesses will have to file financial statements in a new format

A new accounting standard prepared by the Institute of Chartered Accountants of India (ICAI) based on a global accounting rule change mandates businesses to classify all income and expenses into three defined groups—operating, which deals with core business activities, investing activities, dealing with returns or losses and, financing, which deals with items like interest paid or received, one of the persons quoted above said.

This is expected to make the profit and loss account more structured compared to the current format in which some of the information is scattered. Besides, certain metrics shown outside financial statements to complement the profit and loss account—for example, excluding certain one-off expenses to show a normalized or underlying operational performance—will now be part of the financial statements and hence, covered by the statutory audit, experts explained.

Also read | Forex rate disclosures: ICAI supports change suggested by audit watchdog NFRA

ICAI’s proposed accounting standard IndAS 118 is broadly on the lines of a global accounting norm that takes effect in January 2027–International Financial Reporting Standard (IFRS) 18, which seeks to make financial statements more relevant by highlighting material facts.

Queries emailed to ICAI, NFRA and corporate affairs ministry seeking comments remained unanswered.

“Once ICAI’s Accounting Standards Board and Council approve IndAS 118, it will be referred to National Financial Reporting Authority’s (NFRA) board to consider, after which it will be sent to the ministry of corporate affairs for notification,” a person aware of the process of implementing the new standard said on condition of not being named.

IndAS is applicable only to listed companies, companies in the process of getting listed, unlisted companies with ₹250 crore networth and more, and large or listed non-bank lenders.

IFRS is followed in over 140 countries and trade blocs including the EU, but not the US, which follows its own Generally Accepted Accounting Principles (GAAP). India’s IndAS accounting standards are harmonized with IFRS, but have certain carveouts to suit local context.

Read this | NFRA inches ahead of ICAI in regulatory turf

ICAI has proposed to make changes effective 1 April 2027. The accounting standard setter is now seeking public feedback on this.

“IFRS18 seeks to give more prominence to more relevant and material information in the presentation of financial statements,” explained Steinar S. Kvifte, partner and IFRS leader at EY Nordics, which represents EY’s operations across Nordic countries.

“IFRS 18 will, to some extent, restructure the profit and loss account, which is a primary focus of investors, so that you get new categories – operating, investing and financing-and sub-totals in the income statement, such as operating profit and profit before financing and income tax,” said Kvifte.

The second major impact of IFRS18 relates to adjusted profit measures or key performance indicators, which are usually referred to in investor communities as non-GAAP items, Kvifte explained.

Also read | ICAI to flag concerns about Byju’s financials

These metrics, referred to as ‘management defined-performance measures’ or MPMs, which at present are communicated outside financial statements by businesses, have to be reported within the financial statements, he said. “There would be significant disclosures around them. These would now be within the purview of statutory audits. The idea is to enhance the communication done through financial statements,” said Kvifte.

IndAS 118 brings more transparency and better understanding of the financial statements, said Nemish Kapadia, partner, assurance at Sudit K. Parekh & Co LLP, an advisory, audit and tax service firm. The requirement of the new standards, with the additional disclosures and labelling will enable the readers to take more informed decisions as it brings more clarity for users to decipher the relevant information in a logical manner, said Kapadia.

“It surely caters to the expectations from stakeholders of companies regarding presentation of financial information in a manner supporting better understanding and in turn, informed decision making,” said Kapadia.

Also read | ICAI to widen peer review process for auditors: Talati

Companies have to be prepared well ahead of the due date of transition.

“Year 2027 is still some time away, but the point is that when you implement the new standard starting 2027, you also have to restate your comparatives. Typically, companies will have 2026 comparatives, and in 2026, they will report under the current accounting standard, but then in 2027, they will restate their 2026 numbers following IFRS18,” said Kvifte.

IndAS is applicable only to listed companies, companies in the process of getting listed, unlisted companies with ₹250 crore networth and more, and large or listed non-bank lenders.

And read | The angst in ICAI over an audit regulation move