What is PSAK 118? The new income statement rules for 2027, and how to prepare
The auditors’ planning meeting for the 2026 year-end is on the calendar, and the partner mentions in passing that next year’s financial statements will be under PSAK 118, “so your 2026 comparatives will need restating too”. Back at their desk, the controller looks at this year’s income statement: revenue, cost of sales, selling, general and administrative, operating profit, other income, other expenses, finance costs. Which of those lines move, and to where?
Most of the answer is in two lines that have been growing quietly for years: “other income” and “other expenses”. The rest is in a chart of accounts that was never designed to answer the questions the new standard asks.
PSAK 118 is the new standard for presenting and disclosing financial statements in Indonesia, and it takes effect on 1 January 2027. This guide covers what changes, a worked example restating one income statement, what it means in Indonesia, the other SAK changes due the same day and how to prepare while you close 2026.
What is PSAK 118?
PSAK 118, Presentation and Disclosure in Financial Statements, is Indonesia’s adoption of IFRS 18. DSAK IAI, the body that sets Indonesia’s financial accounting standards, ratified it on 28 May 2025. It replaces PSAK 201, Presentation of Financial Statements (known as PSAK 1 before the standards were renumbered), for annual periods beginning on or after 1 January 2027. Early application is permitted.
PSAK 118 changes presentation, not measurement. Revenue, expenses, assets and liabilities are recognised and measured exactly as before, and profit for the year doesn’t change. What changes is where each item sits in the income statement, which subtotals appear and what the notes have to say. IAI expects the largest changes in the income statement and the notes, some in the cash flow statement and few in the balance sheet and the statement of changes in equity.
What changes
- Five categories in the income statement. Every item of income and expense goes into one of five categories: operating, investing, financing, income taxes and discontinued operations. Operating is the default: anything that doesn’t belong elsewhere lands there. Investing covers returns from investments, such as your share of an associate’s profit and interest earned on cash and deposits. Financing covers interest on borrowings such as bank loans and bonds, and interest on other liabilities such as leases. Companies whose main business is investing or lending, such as banks and insurers, classify some of these differently.
- Two required subtotals. Operating profit and profit before financing and income taxes must be presented, alongside profit for the year. Until now, “operating profit” had no definition, so companies drew the line in different places.
- Management-defined performance measures. A management-defined performance measure (MPM) is a subtotal of income and expenses that you use in public communications outside the financial statements, such as “adjusted EBITDA” or “core profit” in an investor presentation. Each one now goes in a single note: why it’s useful, how it’s calculated and a reconciliation to the nearest subtotal the standard defines.
- Clearer grouping and labels. Items are grouped by shared characteristics and split where they differ, and labels must say what an item is. A large line called “other” needs a more descriptive label, or a note on what’s in it.
- Expenses by nature, even when you present by function. If you present operating expenses by function (cost of sales, selling, general and administrative), a note must show five expenses by nature: depreciation, amortisation, employee benefits, impairment and inventory write-downs, each with the amount in every line of the income statement.
- Changes to the cash flow statement. The indirect method starts from operating profit. For most companies, interest and dividends paid go under financing, and interest and dividends received under investing, so the choice you had before is largely gone.
The standard applies retrospectively, so comparatives are restated. For a company with a December year-end, the first statements under PSAK 118 are for 2027, and they show 2026 in the new layout, with a reconciliation of each 2026 income statement line between the old and new presentation. Companies that publish interim reports meet the new structure earlier in 2027.
A worked example: restating 2026
A distribution company buys from a supplier in US dollars, has a bank loan, leases its warehouses and owns a stake in an associate. Under PSAK 201 it presented operating profit of Rp 13.7 billion, then other income of Rp 2.7 billion, other expenses of Rp 2.1 billion and finance costs of Rp 3.0 billion, for profit before tax of Rp 11.3 billion.
The lines below operating profit break down like this. The amounts are only illustrative:
| Item (Rp billion) | Amount | PSAK 118 category |
|---|---|---|
| Gain on sale of delivery vans | 0.4 | Operating |
| Exchange loss on supplier payables | (0.9) | Operating |
| Impairment loss on receivables | (1.2) | Operating |
| Interest income on deposits | 0.8 | Investing |
| Share of profit of associate | 1.5 | Investing |
| Interest on bank loan | (2.4) | Financing |
| Interest on lease liabilities | (0.6) | Financing |
The exchange loss goes to operating because it arises on supplier payables, which are part of operations. An exchange loss on a dollar bank loan would go to financing. Restated, the 2026 income statement looks like this:
| 2026 (Rp billion) | Amount |
|---|---|
| Revenue | 120.0 |
| Cost of sales | (84.0) |
| Gross profit | 36.0 |
| Selling and distribution | (12.5) |
| General and administrative | (9.8) |
| Impairment loss on receivables | (1.2) |
| Exchange loss on supplier payables | (0.9) |
| Gain on sale of delivery vans | 0.4 |
| Operating profit | 12.0 |
| Share of profit of associate | 1.5 |
| Interest income on deposits | 0.8 |
| Profit before financing and income taxes | 14.3 |
| Interest on bank loan | (2.4) |
| Interest on lease liabilities | (0.6) |
| Profit before tax | 11.3 |
| Income tax | (2.5) |
| Profit for the year | 8.8 |
What the restatement shows:
- Operating profit falls from Rp 13.7 billion to Rp 12.0 billion for the same year. The impairment and the exchange loss (Rp 2.1 billion together) were “other expenses” and are now operating, and so is the Rp 0.4 billion gain.
- Profit before tax is still Rp 11.3 billion. Nothing was remeasured; items moved.
- Anything defined on operating profit sees a different number. A loan covenant, a bonus scheme or a board target based on 2026 operating profit now reads Rp 1.7 billion lower.
- The notes need detail the income statement doesn’t show. Because the company presents expenses by function, it must disclose, for example, employee benefits of Rp 14.6 billion: Rp 4.2 billion in cost of sales, Rp 5.1 billion in selling and distribution and Rp 5.3 billion in general and administrative.
Why it goes wrong in practice
Reading the standard is the easy part. The work is in the ledger.
- Accounts that mix categories. One exchange difference account holds gains and losses on both supplier payables and dollar loans. One “other expenses” account holds bank charges, penalties, donations and write-offs. Each has to be split by hand every reporting period.
- Expenses coded by who, not what. Cost centres tell you the function, and the GL account tells you the nature. When medical reimbursements, phone allowances and other benefits paid through expense claims land in “office expenses” or “miscellaneous”, the employee benefits note is understated.
- A mapping that lives in one spreadsheet. The trial balance is mapped to the financial statements in a file one person maintains. PSAK 118 adds a category to every line, for two years at once.
- MPMs nobody listed. Investor relations has used “core profit” in presentations for years. Finance learns in the audit that it now belongs in the audited notes, with a reconciliation.
- Covenants and targets left behind. Loan agreements and incentive schemes refer to operating profit or EBITDA, and nobody checks how they’re defined until the first restated number arrives.
- Waiting for 2027. The 2026 figures are the comparatives, so the 2026 close is effectively the first PSAK 118 close.
What it means in Indonesia
- Who applies it. PSAK 118 is part of SAK Indonesia (full SAK), which applies to entities with public accountability, such as listed companies, banks and insurers, and to any company that reports under full SAK, often because its group or its lenders require it. Private companies on SAK EP (SAK Entitas Privat, which replaced SAK ETAP from 2025) follow their own presentation rules and are generally not required to apply PSAK 118. If your parent reports under full SAK, though, its consolidation pack will ask for your numbers in the new categories.
- Tax. Because PSAK 118 changes presentation rather than measurement, it doesn’t change taxable income by itself. Your fiscal reconciliation (rekonsiliasi fiskal) still starts from commercial profit, but the mapping from your income statement lines to the corporate income tax return will need checking against the new layout.
- Listed companies and their lenders. MPMs matter most where there are investor presentations, press releases and an annual report. Many loan agreements also set financial ratios on figures from the audited statements, so read the definitions before the first restated statements arrive, not after.
The other SAK changes from 1 January 2027
PSAK 118 is the largest, but not the only one:
- PSAK 119, Subsidiaries without Public Accountability: Disclosures (based on IFRS 19). An optional standard that lets eligible subsidiaries, whose parent publishes consolidated financial statements under SAK, apply full SAK with reduced disclosures. It was amended in November 2025, and both take effect on 1 January 2027, with early application permitted.
- PSAK 401, Presentation and Disclosure in Sharia Financial Statements. The sharia counterpart of PSAK 118, with categories that include company zakat, the same required subtotals and MPM disclosures. Alongside it, ISAK 403 requires sharia entities on SAK EP or SAK EMKM to present a statement of changes in social funds.
- PSPK 1 and PSPK 2. Indonesia’s first sustainability disclosure standards, based on IFRS S1 and IFRS S2: general requirements for sustainability-related financial information and climate-related disclosures. They take effect on 1 January 2027. Which companies must report under them, and from when, is set by OJK, so check the current OJK rules for your company.
Signs you’re not ready for PSAK 118
Your company probably has work to do if any of these sound familiar:
- Nobody can say what’s in “other income” and “other expenses” without opening the ledger.
- The mapping from trial balance to financial statements lives in one person’s spreadsheet.
- Presentations to investors or the board use an “adjusted” or “core” profit that finance hasn’t defined in writing.
- Loan covenants or bonus schemes refer to operating profit, and nobody has read the definitions.
- Nobody has asked the auditor how they will review the restated 2026 figures.
PSAK 118 doesn’t change how much profit you made. It changes which number people read first, and your ledger has to be able to explain it.
How to prepare, starting with the 2026 close
- Map every income statement account to a category. Add an operating, investing, financing or income tax column to your trial balance mapping, and flag the accounts that mix more than one.
- Split the accounts that mix categories. Separate exchange differences on borrowings from those on operating balances, interest on loans from interest on leases, and break up the large “other” accounts. Do it in the chart of accounts from 1 January 2027 at the latest, and analyse the 2026 balances once for the comparatives.
- Make the nature of each expense visible. Check that depreciation, amortisation, employee benefits, impairment and inventory write-downs each have their own accounts, and that cost centres tell you the function. Then check where benefits paid through reimbursements actually land.
- Restate 2026 early. Prepare the 2026 income statement in the new layout as soon as the year is closed, and agree it with your auditor before the first 2027 report is due.
- List your MPMs. Collect every performance measure used in investor presentations, press releases and the annual report. Decide which are MPMs, then write a definition and a reconciliation for each.
- Read your covenants and targets. Check every loan agreement, bonus scheme and board target that uses operating profit or EBITDA, and agree with lenders how the new figures will be used.
- Update the packs that feed the statements. Management accounts, subsidiaries’ consolidation packs, the month-end close checklist and the tax working papers all need the new categories.
- Brief the people who read the numbers. The board, the Dewan Komisaris, the audit committee and your banks should hear why 2026 operating profit has changed before they see it in the statements.
How Procapy helps
Procapy doesn’t prepare your financial statements; your ledger stays the system of record. Where it helps with PSAK 118 is upstream: the spend that flows through it reaches the ledger coded the same way every time. In Proca to Pay and Capy Expense, Procapy suggests the GL account and cost centre from the vendor, category and history, and learns from your team’s corrections, so the same kind of spend lands in the same account whoever submits it. That’s the nature and the function the new notes ask for, recorded when the money is spent rather than rebuilt at year-end.
Approved transactions post to Dynamics, SAP, Xero, QuickBooks or ABSS with their coding, tax treatment, attachments and approval reference. Every transaction keeps its source document, its coding and its approvals, and every coding change is logged in the audit trail, so when the auditors test restated figures, the evidence is on the transaction. Spend by cost centre, vendor, project, category and entity is available as soon as a transaction is approved, and Proca Agents can assemble recurring reports such as month-end packs on schedule.
The audit page has more. Book a 30-minute walkthrough, bring your close checklist and your chart of accounts, and we’ll map the manual steps to Procapy live.