Module: | Statutory Audit, NFRA & ICAI Standards
Q44: Consider the following statements regarding the proposed Ind AS 118 (Presentation and Disclosure in Financial Statements) designed to converge with IFRS 18:
1. Ind AS 118 introduces the option of presenting the statement of profit and loss using a functional classification of expenses, in addition to the traditional classification by nature.
2. The standard strictly prohibits the inclusion and disclosure of Management-defined Performance Measures (MPMs), such as adjusted EBITDA, within the audited financial statements.
3. The primary objective of converging with IFRS 18 is to restructure the statement of profit and loss to improve the comparability of financial performance across different entities.
Which of the above statements is/are incorrect?
2. The standard strictly prohibits the inclusion and disclosure of Management-defined Performance Measures (MPMs), such as adjusted EBITDA, within the audited financial statements.
3. The primary objective of converging with IFRS 18 is to restructure the statement of profit and loss to improve the comparability of financial performance across different entities.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; unlike the older framework, India negotiated the introduction of 'functional' classification of expenses (e.g., cost of sales, administrative expenses) as an option alongside nature-wise classification.
Statement 2 is incorrect; rather than prohibiting them, Ind AS 118/IFRS 18 actually introduces formal requirements to disclose and reconcile Management-defined Performance Measures (MPMs) directly within the notes to the financial statements, bringing them under audit scope.
Statement 3 is correct; enhancing global comparability is the core driver of the standard.
Historical/Related Context: For years, companies published "adjusted profits" or "EBITDA" in their press releases that bore no resemblance to their audited GAAP figures.
IFRS 18 was developed globally to reign in these rogue metrics.
Causal Reasoning: By bringing management's custom performance metrics into the audited financial statements, the standard ensures these figures are rigorously tested, preventing companies from misleading investors with overly optimistic, unverified profit calculations.