On 28 May 2025, the Financial Accounting Standards Board of the Institute of Indonesia Chartered Accountants (DSAK IAI) ratified PSAK 118 Presentation and Disclosure in Financial Statements. The standard adopts IFRS 18, issued by the IASB in April 2024, replaces PSAK 201 Presentation of Financial Statements, and takes effect on 1 January 2027. That date is less than three months away, and because the standard applies retrospectively, 2026 comparative figures must also be re-presented in the new structure.
This article summarises what changes, who is affected, and what finance teams should prepare now.
Why Is the Statement of Profit or Loss Changing?
Until now, presentation standards have allowed wide discretion in structuring the statement of profit or loss. As a result, terms such as "operating income" or "operating profit" have been calculated differently from one company to another, making comparison difficult. Many companies also communicate their own performance measures outside the financial statements without adequate explanation.
According to DSAK IAI, PSAK 118 aims to improve companies' communication with investors through the information in financial statements, with major changes to the profit or loss section and the notes. The changes rest on three pillars: new categories and subtotals in the statement of profit or loss, disclosure of management-defined performance measures, and guidance on aggregating and disaggregating information.
It is worth stressing that PSAK 118 deals with presentation and disclosure, not recognition and measurement. Net profit generally does not change; what changes is how income and expenses are grouped and which subtotals must be shown.
Five Categories and Required Subtotals
Every item of income and expense in the statement of profit or loss is classified into one of five categories:
- Operating — income and expenses from the entity's business operations, including those that are unusual or volatile.
- Investing — returns from assets that generate a return individually and largely independently of other resources, such as rental income from investment property, interest and dividends on investments, results of associates and joint ventures, and cash and cash equivalents.
- Financing — income and expenses from liabilities arising solely from raising finance, such as bank loans, plus interest expense on other liabilities such as lease liabilities and post-employment benefit liabilities.
- Income taxes.
- Discontinued operations.
These categories produce two new required subtotals in addition to profit (loss) for the year: operating profit (loss) and profit (loss) before financing and income taxes. Because the definitions are uniform, the operating profit of two companies can now be compared more fairly.
Special requirements apply to entities whose main business activity is investing or providing finance, such as banks and insurers. For them, some income and expenses that other companies would classify as investing or financing are included in operating profit. The first step for every entity is therefore to assess its main business activities.
Management-Defined Performance Measures (MPMs)
Many companies report figures such as "adjusted operating profit" in press releases, public expose presentations, or annual reports. PSAK 118 calls these management-defined performance measures (MPMs; ukuran kinerja tetapan manajemen, UKTM): subtotals of income and expenses that are not required by the standards, are used in public communications outside the financial statements, and reflect management's view of financial performance.
MPMs may still be used, but they must be disclosed in a single note to the financial statements that includes:
- a reconciliation to the most directly comparable subtotal or total required by the standards;
- an explanation of why the measure is useful and how it is calculated;
- an explanation of any change in how it is calculated; and
- the income tax and non-controlling interest effects of each reconciling item.
As a consequence, figures that previously appeared only in investor presentations will move into the notes and become part of the audited financial statements.
Aggregation, Disaggregation, and Expenses by Nature
PSAK 118 gives firmer guidance on when items should be combined or separated. Items are grouped on the basis of shared characteristics, and a single dissimilar characteristic can be enough to separate them if the information is material. The label "other" is used only when no more informative label can be found, and its content must be explained.
Entities that present operating expenses by function (for example cost of sales, selling expenses, and general and administrative expenses) must disclose in the notes the amounts of five types of expense included in each such line item: depreciation, amortisation, employee benefits, specified impairments, and inventory write-downs. This data is often not directly available from the chart of accounts, so recording systems may need to be adjusted.
Impact on the Statement of Cash Flows
PSAK 118 brings consequential amendments to PSAK 207 Statement of Cash Flows. Under the indirect method, the starting point for cash flows from operating activities becomes operating profit (loss). Classification choices for interest and dividends are also removed for most entities: interest and dividends received go to investing activities, while interest and dividends paid go to financing activities. Entities with specified main business activities, such as banks, place each of these items in a single category based on its characteristics.
Who Is Affected and How Does Transition Work?
PSAK 118 is part of SAK Indonesia, so it applies to entities preparing financial statements under that pillar, including listed companies, banks, insurers, and other entities that choose or are required to use SAK Indonesia. Entities using SAK for Private Entities (SAK EP) or SAK EMKM are not directly affected. The SAK pillars are explained in the article Applying the Latest SAK.
Application is retrospective, including in interim financial statements. For entities with a calendar financial year, the 2027 annual financial statements will present 2026 comparatives in the new structure, and 2027 interim reports will also follow PSAK 118. IFRS 18 permits early application, and the PSAK 118 exposure draft proposed the same; entities wishing to apply it early should confirm this against the final text of PSAK 118 and their regulator's requirements.
Preparation Steps to Start Now
- Determine main business activities. This assessment decides whether investment income and financing expenses fall within operating profit.
- Map every profit or loss account to the operating, investing, financing, income tax, or discontinued operations category, including foreign exchange differences and fair value changes.
- Inventory MPMs. Gather the performance measures used in press releases, public expose presentations, annual reports, and investor materials; prepare the reconciliations and tax effects.
- Prepare expense-by-nature data. Ensure the chart of accounts and systems can separate depreciation, amortisation, employee benefits, impairments, and inventory write-downs by function.
- Re-present 2026 comparatives and update the 2027 interim reporting templates and the statement of cash flows.
- Engage early with the audit committee and external auditor on classification policies, MPMs, and the impact on investor communication.
Conclusion
PSAK 118 does not change the amount of profit, but it changes how profit is told. Uniform categories and subtotals, transparency about management's own performance measures, and clearer expense detail will make financial statements easier to compare. Because 2026 comparatives must be re-presented, preparation should start now, not after the 2026 year-end close.
Need support applying PSAK 118 or reviewing financial statement presentation? See the Accounting & SAK Implementation or Financial Statement Audit services, and read also Right-of-Use Assets under PSAK 116.
Official References
- DSAK IAI: DSAK Terkini Volume 7 2025 (ratification of PSAK 118, 28 May 2025) — Indonesian
- DSAK IAI: Exposure Draft PSAK 118 Presentation and Disclosure in Financial Statements — Indonesian
- IFRS Foundation: Primary Financial Statements (IFRS 18)
- IFRS Foundation: IFRS 18 Subtotals and Categories (webinar slides)
- PSAK 118 Presentation and Disclosure in Financial Statements; PSAK 201 Presentation of Financial Statements; PSAK 207 Statement of Cash Flows.
This article is general information and is not accounting, audit, or tax advice for any particular situation. Application to each entity must consider its facts, accounting policies, the full text of the standards, and applicable regulatory requirements. The Indonesian version is the original text.