India’s New Financial Reporting Rules Start April 2027

The National Financial Reporting Authority (NFRA) in India is set to introduce Ind AS 118, a new accounting standard taking effect for fiscal years beginning on or after April 1, 2027. This standard fundamentally changes how Indian companies present their financial performance, aiming for greater transparency and consistency.

Mandatory Income Classification

A significant shift under Ind AS 118 involves the compulsory classification of all income and expense items into five distinct categories. These new classifications are designed to offer investors a clearer understanding of a company’s revenue generation and resource allocation.

The five required categories are:

Operating income and expenses.

Investing income and expenses.

Financing income and expenses.

Income taxes.

Discontinued operations.

The introduction of operating, investing, and financing categories represents a new requirement for Indian accounting standards. Specialized businesses, such as banks and non-banking financial companies (NBFCs), must carefully determine if their primary activities align with investing or financing, as their classification rules will diverge from those of manufacturing or service firms.

Implementation Timelines and Data Restatement

The implementation of Ind AS 118 mandates a lead time of at least one year for companies to prepare. This requires businesses to restate their comparative financial information to align with the new reporting format.

When reporting results for the quarter ending June 2027, companies must also provide restated figures for previous periods. Furthermore, businesses planning an Initial Public Offering (IPO) in the 2028 fiscal year will need to restate financial data for the preceding three years.

This requirement will necessitate substantial updates to companies’ information systems and financial closing processes, ensuring compliance with the new standard’s rigorous demands.

Auditing Management-Defined Performance Measures

Another crucial change under Ind AS 118 impacts Management-Defined Performance Measures (MPMs), which many companies currently use for custom profit subtotals in earnings presentations. If these MPMs are utilized externally, new disclosure rules apply.

These MPMs must be disclosed in a single note, clearly explaining their calculation. Companies must also provide a reconciliation to the standard accounting profit, ensuring transparency.

Significantly, these Management-Defined Performance Measures will now be subject to audit, a measure intended to reduce inconsistencies in how companies present their internal performance metrics. The standard also mandates new, specific subtotals like operating profit or loss, offering a more standardized view of company health across various sectors.