On May 28, 2025, the Financial Accounting Standards Board of the Institute of Indonesia Chartered Accountants (Dewan Standar Akuntansi Keuangan Ikatan Akuntan Indonesia/DSAK IAI) ratified PSAK 118 on Presentation and Disclosure in Financial Statements. Based on IFRS 18 Presentation and Disclosure in Financial Statements, the standard takes effect on January 1, 2027, and replaces PSAK 201 on Presentation of Financial Statements.
The transition from PSAK 201 to PSAK 118 is more than a renumbering. PSAK 118 changes the income statement structure by classifying income and expenses into operating, investing, financing, income tax, and discontinued operations categories. The standard also requires subtotals for operating profit and profit before financing and income tax, while enhancing disclosures on management-defined performance measures (MPMs) and disaggregation of information.
For tax professionals, these changes extend beyond commercial financial reporting. The DGT’s Coretax system uses financial statement and tax data for reporting and compliance monitoring. Changes in the structure and level of detail in financial statements necessitate reconciliation and data mapping between accounting systems and tax filing.
The risk does not arise because PSAK 118 changes tax rules, but because changes in financial statement presentation may require more structured mapping and documentation.
Tax Principles
PSAK 118 governs the presentation and disclosure of financial statements, rather than the determination of taxable income. Tax treatment remains subject to applicable tax laws and regulations. Commercial financial statements serve as a basis for calculating and explaining a taxpayer’s tax position.
Article 28(7) of the KUP Law requires accounting records to include, at a minimum, records of assets, liabilities, equity, income and expenses, and sales and purchases, to ensure accurate tax calculations. Its elucidation outlines that one must maintain accounting records using methods or systems commonly applied in Indonesia, including those based on Financial Accounting Standards, unless tax regulations provide otherwise.
Accordingly, changes to PSAK do not eliminate the need for fiscal reconciliation. Commercial profit or loss must still be adjusted in accordance with tax provisions to determine taxable income, including through positive and negative adjustments and specific tax treatments for specific types of income and expenses.
Income Statement Structure
One of the core changes under PSAK 118 is the income statement structure. Income and expenses are classified into operating, investing, financing, income tax, and discontinued operations categories. The operating category includes income and expenses that do not fall into the other categories.
PSAK 118 also requires subtotals for operating profit and profit before financing and income tax. This rule limits the use of operating profit subtotals because definitions differ and provides a more consistent reference point for users when comparing performance across entities.
Management Performance
PSAK 118 introduces requirements for MPMs, which may include adjusted earnings before interest, taxes, depreciation, and amortization, or other profit measures management designs and uses in public communications.
Entities must disclose information on MPMs in the notes to the financial statements, including how they are calculated and reconciled with the subtotals or totals specified under PSAK.
These requirements increase transparency around performance metrics management uses outside the measures defined under PSAK. However, MPMs are not equivalent to profit measures specified under PSAK. PSAK 118 focuses on disclosing and tracing these metrics within the financial statements.
Expense Disaggregation
PSAK 118 reinforces the principles of aggregating and disaggregating information. When an entity presents expenses by function, the standard requires it to disclose certain information on expenses by nature. As a result, the standard requires greater detail on components such as remuneration, depreciation, amortization, and other costs.
These requirements are relevant to tax filing through Coretax. In the corporate income tax return, taxpayers submit financial statement information and financial statement reconciliations, in addition to other tax information. The DGT has also explained that data within Coretax are interconnected and subject to system consistency checks.
This circumstance makes accurate classification and data mapping crucial. However, discrepancies between financial statements and withholding or collection tax data do not automatically result in an SP2DK. Compliance risk management (CRM) is a compliance risk management instrument, while an SP2DK is a request for explanations of data and/or information where there are indications that tax obligations may not have been fulfilled.
Therefore, PSAK 118 is better viewed as a factor that increases the need for data consistency and traceability, rather than as an automatic trigger for tax enforcement action.
Account Mapping
Changes in financial statement structure make the chart of accounts (COA) more important within enterprise resource planning (ERP) systems. The COA must support financial reporting, fiscal reconciliation, and mapping of tax-related transactions.
Companies must ensure each account can be traced from the underlying transaction through the financial statements and tax filing. The operating category under PSAK 118 does not necessarily correspond to the classification of income for tax purposes. Consequently, a single transaction may have different classifications for financial reporting and tax purposes.
Thus, consistent dual mapping from the transaction level is essential. This approach reduces the risk of unexplained differences when financial statements are reconciled with tax returns and other tax data.
Tax Risks
Corporate taxpayers should anticipate at least four practical risks ahead of 2027. First, errors in determining the starting point for fiscal reconciliation. Operating profit cannot simply substitute for commercial profit before tax without considering all relevant income and expenses for tax purposes.
Second, mismatches in account mapping resulting from changes in presentation structure and information disaggregation. Such circumstances may further complicate reconciliation between financial statements and tax filings.
Third, misclassification of borrowing costs or interest expense in the company’s internal mapping. The tax treatment of borrowing costs is subject to specific tax provisions and is not determined solely by their classification under PSAK 118.
Fourth, combining too many small accounts into overly broad categories to accelerate reporting. This practice can reduce transaction traceability and make it more difficult for taxpayers to explain the nature of transactions, the applicable tax treatment, or their reconciliation with withholding tax slips and other tax documents.
Action Plan for 2027
Before PSAK 118 takes effect, companies should conduct a gap assessment of their COA, prepare a mapping table between their ERP system and tax filing requirements, and update their fiscal reconciliation workpapers. Companies should also test whether data in their accounting systems can support disclosures based on the nature and classifications required under PSAK 118.
Finance, tax, information technology, and independent audit teams should begin coordinating early. The objective is not to align PSAK with tax regulations, but to ensure that differences in their respective purposes and classifications are explainable and traceable through consistent data.
PSAK 118 changes how companies present and disclose financial information. At the same time, tax administration is increasingly reliant on integrated data. Companies therefore need to maintain data connectivity from the transaction level through to financial statements and tax filing.
Differences between commercial and fiscal reporting will remain. The company needs to improve its ability to trace and explain each difference with adequate data and supporting documentation.
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