ICAI Proposes Ind AS 118: Why This New Accounting Standard Is Crucial

In a significant move aimed at strengthening the financial reporting framework in India, the Institute of Chartered Accountants of India (ICAI) has proposed a new accounting standard, Ind AS 118. According to ICAI President Charanjot Singh Nanda, this standard is expected to improve the quality and clarity of financial disclosures without altering how companies measure their overall financial performance.

Background: Public Feedback on Exposure Draft

ICAI issued an exposure draft of Ind AS 118 in January 2025, seeking public comments and industry feedback. The objective behind this draft is to introduce a more consistent and structured format for presenting financial information to users, which will help improve interpretability and comparability across different companies and industries.

Read More: The Three Golden Rules of Accounting

Structured Classification of Income and Expenses

A core feature of Ind AS 118 is its requirement for entities to classify income and expenses under 5 distinct categories:

• Operating

• Investing

• Financing

• Income Taxes

• Discontinued Operations

This classification is designed to provide a clearer picture of how different elements contribute to a company’s overall financial results. For example:

• Income and expenses arising from assets that generate independent returns, such as equity or debt investments, will fall under the investing category.

• Conversely, items related to liabilities—like interest on bank loans or bond payments—will be included in the financing category.

Helping Users Derive Deeper Insights

According to ICAI, this structured breakdown will help users of financial statements—particularly investors and analysts—understand the core operations of a business separately from its investment and financing activities. By isolating operational results, stakeholders can assess a company’s performance without the influence of external financial arrangements or one-time transactions.

Introduction of New Profit Subtotals

Ind AS 118 proposes the inclusion of two additional subtotals in the profit or loss statement:

• Operating profit or loss

• Profit or loss before financing and income taxes

These new subtotals aim to offer a more nuanced view of financial performance, particularly for comparative analysis across periods or peer companies.

No Change in Overall Profit Calculation

While Ind AS 118 introduces changes to how information is presented, it does not impact the calculation of the bottom-line profit. “It introduces a more structured and consistent approach to how that performance is presented and disclosed,” Nanda explained. The underlying accounting methods remain intact, ensuring that the comparability of historic data is preserved.

Conclusion

Although Ind AS 118 is still in the proposal stage, its adoption could mark a meaningful evolution in financial reporting standards in India. By enhancing the granularity and clarity of financial statements, the standard has the potential to provide more actionable insights for various stakeholders, including investors, auditors, and regulators.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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