PSAK 118: More Than a Change in Financial Statement Presentation

On 28 May 2025, Dewan Standar Akuntansi Keuangan Ikatan Akuntan Indonesia (DSAK IAI), the Financial Accounting Standards Board of the Indonesian Institute of Accountants, ratified PSAK 118: Presentation and Disclosure in Financial Statements, a standard which adopts the requirements of IFRS 18. The standard replaces PSAK 201 as the primary standard governing financial statement presentation and disclosure, and takes effect for annual periods beginning on or after 1 January 2027. Certain matters previously addressed under PSAK 201 continue to be governed by other standards.

At first glance, this looks like a change in financial statement formatting. Treating PSAK 118 purely as a presentation exercise, however, risks underestimating its actual impact.

PSAK 118 changes how financial performance is classified, subtotaled, explained, and communicated, and that reach extends well beyond how the income statement looks.

The most visible change is in the income statement itself: PSAK 118 introduces operating, investing, and financing categories, and requires new mandatory subtotals: operating profit or loss, and profit or loss before financing and income tax. The intent isn't uniform formatting for its own sake, but greater consistency, transparency, and comparability of company performance across periods and across companies.

But there's another change that may matter even more to management.

When Management's Own Numbers Come Under Greater Scrutiny

Many companies use performance measures they consider more reflective of how management actually views the business: Adjusted EBITDA, Adjusted Operating Profit, Core Profit, Underlying Profit, Recurring Profit, and similar metrics.

These measures can provide useful additional information. The problem is that, because they're defined by management, their composition often differs from one company to another, sometimes even from one period to the next within the same company.

PSAK 118 pays specific attention to this through the concept of Ukuran Kinerja Tetapan Manajemen (UKTM), known internationally as Management-Defined Performance Measures (MPMs). Measures that meet the UKTM/MPM criteria are subject to specific disclosure requirements, including how they are calculated and how they are reconciled to the most directly comparable subtotal or total specified by the standards.

So the question isn't whether management can still use its own performance measures. The question is how transparent the relationship is between those measures and the numbers reported under PSAK.

For investors, this offers a clearer picture of how management defines underlying performance. For management, the consequence is a need to ensure every measure has a defensible basis, a clear definition, and a reconciliation that can withstand scrutiny, not just a number that "feels more representative."

The More Important Question: What Is Operating Performance?

One of the most fundamental changes in PSAK 118 is the introduction of operating, investing, and financing categories in the income statement. Operating profit is now a subtotal defined and required by the standard for most entities, a significant step toward comparability compared to the largely unstructured formats companies have used until now. Entities with specified main business activities, such as providing financing or investing, are subject to modified requirements that reflect the nature of those activities.

But behind this more standardized structure lies a far more substantive question:

The answer isn't always found by simply reading account names in the general ledger. A company's business characteristics, core activities, the nature of its transactions, and the judgement required to apply the standard all shape how income and expenses get classified.

This becomes especially relevant for companies with multiple business lines, significant investing or financing activity, non-recurring transactions, restructuring, or a mix of internally and externally used performance measures. The more complex the business, the greater the room for judgement, and the greater its influence on how the market understands operating performance.

The Financial Statements Are Only the Visible Output

Financial statements are the visible output. But that output comes from a much longer chain of information and process:

Which is why the relevant question for a CFO isn't simply: "Can our financial statements be prepared under PSAK 118?"

The more strategic question is: "Does the information underlying our financial statements support the presentation and disclosure PSAK 118 requires?"

The distinction matters. A company can have a financial statement format that looks compliant, yet still run into trouble because the supporting information needed for classification, subtotals, UKTM/MPMs, or disclosure simply isn't available in adequate form. This is the point at which PSAK 118 can shift from a financial reporting exercise into a reporting transformation issue.

PSAK 118 also places greater emphasis on how information is aggregated and disaggregated, reinforcing the need to understand not only what is reported, but how the underlying information is grouped and presented.

The impact doesn't stop at the accounting function, either. It can extend into Finance, FP&A, management reporting, investor relations, data, and systems, particularly because management reporting often serves a different purpose than financial reporting, with different definitions attached. Once both need to speak the same PSAK 118 "language," the relationship between how management views performance and how that performance is reported becomes far more consequential.

2026 Isn't Just "the Year Before PSAK 118"

PSAK 118 takes effect for annual periods beginning on or after 1 January 2027, but preparation shouldn't start once the 2027 financial statements are being closed.

One reason: the need for comparative information. First-time application of the new structure requires prior-period figures to be presented on a basis consistent with PSAK 118; the specific transition requirements determine how that is done. That means companies need to understand, starting in 2026, how their historical information will need to be treated under the new framework.

Companies that wait until 2027 risk discovering, too late, that the information needed for comparative disclosures, classification, or other requirements simply isn't available in the form required. Early preparation creates the room to surface these issues before they become reporting-time problems.

Where Companies Could Underestimate the Work

The scale of implementation will differ from company to company, but a few areas are consistently at risk of being underestimated:

• Comparative Information
  The change doesn't stop at current-year figures; historical information needs attention from the outset.
• Classification
  Understanding how existing business activities and transactions map onto PSAK 118's new structure.
• Management Performance Measures
  Measures such as Adjusted EBITDA or Underlying Profit may fall within the scope of UKTM/MPMs when they meet the applicable criteria, often without the disclosure rigor PSAK 118 now requires.
• Management Reporting
  Internal reporting and external financial reporting may not have shared the same definitions and structure all along.
• Information & Systems
  Financial statements are only as good as the information available to prepare them. If system architecture and reporting processes don't produce the required data, presentation changes at the final stage won't be enough on their own.

Questions CFOs Should Start Asking Now

1. Does our current reporting structure support the classification and subtotals PSAK 118 requires?
2. Are the performance measures management communicates to stakeholders consistently defined?
3. Is 2026 information sufficient to support comparative information requirements?
4. Do management reporting and financial reporting tell a consistent story about performance?
5. Where will the company face the most significant judgement in applying PSAK 118?

The answers to these questions will determine whether the PSAK 118 transition requires only a presentation change, or broader attention to reporting processes, information flows, UKTM/MPMs, data, systems, and disclosure practices.

What This Could Mean for Auditors

The change in presentation structure and the expanded disclosure requirements around UKTM/MPMs will likely draw greater attention to areas requiring judgement and consistency, including the classification of income and expenses, determination of operating activities, UKTM/MPMs, reconciliation, aggregation and disaggregation, comparative information, and consistency between the financial statements and performance information communicated publicly.

This doesn't mean the entire audit approach changes. But the areas where management exercises judgement and explains performance are likely to carry more weight in both the financial reporting and audit process, reinforcing the importance of ensuring the basis for presentation and disclosure is well understood and adequately supported.

From Compliance to Reporting Quality

PSAK 118 shouldn't be viewed purely as an obligation to change financial statement formatting. It's part of a broader effort to improve how financial performance is communicated to the people who rely on it.

For companies, the transition can be a challenge, and also an opportunity to revisit a more fundamental question: does the information management uses to understand, measure, and explain company performance rest on an adequate foundation?

That question moves PSAK 118 beyond presentation alone, into the territory of information quality, management reporting, governance, and decision-useful financial information.