PSAK 118 (IFRS 18) introduces significant changes in the presentation of the statement of profit or loss in a more structured and transparent way. The standard improves comparability and the quality of information for investors and stakeholders. Key changes include classification of income and expenses and more consistent subtotals. Its implementation affects how companies communicate performance and business value. Adoption requires adjustments in systems, processes, governance, and human resources. Key challenges include classification consistency, data quality, and professional judgment. The standard strengthens the role of transparency in investment decision-making. Ultimately, PSAK 118 positions transparency as a strategic competitive advantage.
In an increasingly competitive global business environment, corporate distinction is no longer defined solely by flagship products, financial capacity, or market dominance. For modern investors and stakeholders, transparency has become a strategic differentiator, often the principal basis through which the quality and sustainability of a business entity are assessed.
Companies that maintain a high standard of disclosure are generally better positioned to earn market confidence, expand access to funding, and secure a more efficient cost of capital. By contrast, organizations that provide limited or poorly structured information risk adverse market perceptions that can directly affect valuation and share liquidity.
In this context, PSAK 118 should not be viewed merely as a technical update to accounting standards, but as a catalyst for a broader shift in corporate mindset. Financial statements no longer serve solely as a compliance tools; they have become strategic instruments that influences investment decisions, market perception, and the quality of corporate governance.
PSAK 118 introduces a more systematic presentation structure for the statement of profit or loss by classifying income and expenses into operating, investing, financing, income tax, and discontinued operations categories. The standard also requires the presentation of key subtotals, such as operating profit and profit before financing and income tax, consistently across entities and periods.
German philosopher Arthur Schopenhauer once said, “Truth passes through three stages: first it is ridiculed, second it is violently opposed, and third it is accepted as self-evident.” In the corporate world, transparency often follows a similar path. It is initially regarded as an administrative burden, then seen as a regulatory demand, and ultimately recognized as the foundation of market trust.
For the C-suite and the Board, this shift carries direct implications for how business performance is evaluated and communicated to the market. Standardization enhances comparability, enabling investors to more objectively understand the sources of value creation and the quality of earnings.
In modern capital markets, comparability has become a form of currency. Consistent and comparable information accelerates investment decision-making and reduces information risk. PSAK 118 directly reduces this risk by reinforcing discipline in classification, aggregation, and disclosure.
From a governance standpoint, the standard broadens the remit of the Board of Commissioners, the Board of Directors, and the Audit Committee. Oversight can no longer focus solely on formal compliance with PSAK; it must also extend to the quality of the financial narrative. Decisions concerning aggregation, disaggregation, and classification now carry clear strategic implications for investor perception.
PSAK 118 also places greater emphasis on Management-Defined Performance Measures (MPMs). The use of metrics such as adjusted EBITDA or other non-GAAP measures remains permissible; however, these measures must now be supported by clear definitions, transparent calculation methodologies, an explanation of their relevance, and a reconciliation to PSAK-defined subtotals. This requirement strengthens transparency and mitigates the risk of bias in performance communication.
For organizations, implementing PSAK 118 is a transformation agenda not just a purely accounting change. Adjustments are required across ERP systems, chart of accounts structures, consolidation processes, and data governance. Cross-functional readiness is therefore essential to ensure a consistent interpretation of classification and materiality.
In the Indonesian context, PSAK 118 comes at a critical juncture. As global competition for investment intensifies, the quality of financial reporting increasingly reflects the maturity of the national business ecosystem. Companies that implement this standard effectively stand to gain a meaningful strategic advantage.
Ultimately, PSAK 118 emphasizes that transparency is no longer simply a compliance cost, but a strategic investment. Organizations that manage transparency effectively are more likely to strengthen investor confidence, improve decision-making quality, and enhance access to capital on more competitive terms.
Key Challenges in Implementing PSAK 118
As with other changes in accounting standards, the implementation of PSAK 118 introduces not only technical changes to the presentation of financial statements, but also broader organizational demands. For many companies, particularly those with complex business structures, the adoption of this standard may represent one of the most significant financial reporting transformation projects in recent years.
The first challenge typically arises from legacy accounting systems. Many entities find that existing platforms are not yet fully equipped to accommodate expanded presentation requirements, additional subtotals in the statement of profit or loss, or the deeper disclosure expectations introduced by PSAK 118. In such cases, system enhancement or reconfiguration is no longer optional; it becomes a prerequisite for ensuring that financial information can be captured, classified, and reported accurately and efficiently.
A second challenge relates to the increased level of disclosure detail required. PSAK 118 encourages a broader application of disaggregation principles to enhance transparency and improve the quality of information available to users of financial statements. For business groups with numerous subsidiaries, multiple business units, or decentralized operations, maintaining consistent definitions, timely consolidation processes, and data integrity can be highly complex and resource-intensive.
Furthermore, PSAK 118 heightens the importance of management’s professional judgment in the financial reporting process. Determining materiality, classifying transactions, and defining the appropriate level of disclosure detail all require sound and consistent judgment. Where such judgment is applied inconsistently across units or entities within a group, the comparability of information may diminish, and overall reporting quality may be affected.
From a governance perspective, these changes also require closer coordination among finance, operations, risk management, and corporate reporting functions. As a result, the success of PSAK 118 implementation depends not only on the quality of the accounting system, but also on the effectiveness of governance and internal communication. Ultimately, consistency in understanding and applying the standard’s requirements will be a critical factor in preserving the reliability, transparency, and usefulness of financial statements for stakeholders.
A Practical Approach to Implementing PSAK 118
For management, PSAK 118 implementation should not be viewed as a mere compliance project. The standard requires a structured, phased, and integrated response so that the changes it introduces can be implemented effectively without compromising the quality or timeliness of financial reporting.
A practical starting point is comprehensive gap analysis. Through this process, organizations compare current accounting policies, reporting structures, and disclosure practices against the new requirements introduced by PSAK 118. The results of this analysis serve as a basis for management to identify areas requiring adjustments, including policies, systems, and reporting processes.
Once the required areas of change have been identified, the next focus should be on updating accounting policies and aligning reporting practices across the organization. Consistency across reporting units becomes especially important, given that PSAK 118 places strong emphasis on comparability and transparency. In this context, clear and standardized policy documentation provides an essential foundation for reliable implementation.
The next stage is to ensure operational readiness across systems and processes. Many organizations will need to adapt their accounting systems to accommodate new line items, additional subtotals, and broader disclosure requirements. At the same time, companies must establish processes capable of collecting, validating, and consolidating information at a more granular level so that reporting can continue to be delivered in a timely, accurate, and consistent.
Beyond technology and process considerations, human capital readiness also plays a critical role. Finance teams require adequate training on the new requirements, while effective communication with internal stakeholders must be maintained to ensure alignment in understanding and to minimize the risk of misinterpretation. Many organizations are therefore beginning to consider parallel reporting or pilot reporting runs as a means of testing new processes, identifying potential gaps, and refining their approach before full implementation.
Peter Drucker once reminded us that the goal of management is not just to do things right, but to ensure the organization does the right things. In the context of PSAK 118, that message is particularly relevant. This standard is not simply about how financial statements are prepared, but also how companies build trust through the information they convey to the market.
Ultimately, the success of PSAK 118 implementation will not be measured by the number of additional disclosures included in the financial statements. It will be reflected in better business decisions, stronger investor confidence, and the creation of a more transparent and efficient market ecosystem. In a world increasingly reliant on information, transparency is no longer simply a compliance cost; it has become a source of competitive advantage.
