Your adjusted EBITDA is about to be audited: management-defined performance measures under Ind AS 118

Short answer: If you say “adjusted EBITDA”, “operating EBITDA” or “PAT before exceptional items” to investors, Ind AS 118 will most likely require you to define that number, reconcile it to a defined subtotal, show the tax and minority effect of every adjustment, and put all of it in one audited note. The measures stay yours. The discipline around them becomes the auditor’s business.

What counts as an MPM

A management-defined performance measure is a subtotal of income and expenses that meets three conditions:

• you use it in public communication outside the financial statements;
• it shows management’s view of an aspect of the company’s financial performance; and
• it isn’t a subtotal the standards already define or list as excluded.

“Public communication” is wide. Think investor presentations, results press releases, earnings call scripts, the MD&A and the chairman’s letter. If a subtotal appears there, the starting assumption is that it reflects management’s view.

Some things are outside the definition: subtotals the standards require (such as operating profit), a short list of common subtotals the standard itself names (gross profit and operating profit before depreciation, amortisation and certain impairments among them), and measures that aren’t built from income and expenses, such as free cash flow or order book.

Why this matters more in India than people think

Indian practice around EBITDA is anything but uniform. Some companies include other income, some exclude it; some take exceptional items out, some don’t; some add back ESOP cost or forex. Under Ind AS 118, the plain “operating profit before D&A” version isn’t an MPM, but most of the versions actually used in Indian investor decks will be, because they are computed differently from that defined subtotal.

The same applies to adjusted PAT, EBITDA before one-offs, “cash profit” built from the P&L, and segment-level adjusted numbers if they are shared publicly.

What you will have to disclose

For each MPM, in a single note:

• what it measures and why management thinks it is useful;
• how it is calculated;
• a reconciliation to the most directly comparable subtotal defined by the standards;
• the income tax effect and the non-controlling interest effect of each reconciling item, and how the tax effect was worked out; and
• if you change a measure, add one or drop one, what changed and why, with restated comparatives where you can.

The governance shift

Today, adjusted measures often live in an investor-relations workbook that the audit committee sees once, if at all. Once they sit in the audited notes:

• the definitions need an owner and formal approval;
• the calculation needs internal controls like any other reported number;
• the investor deck, press release and notes must use the same definition, every quarter;
• “one-off” adjustments that recur will be questioned; and
• interim reports carry the disclosures too, so this is a quarterly routine, not a year-end one.

How to find your MPMs

Build an inventory before your auditors do:

1. Collect the last four quarters of investor presentations, results releases and earnings call transcripts.
2. List every subtotal of income and expenses mentioned, including those in segment commentary.
3. Remove the ones the standards define or exclude.
4. For each remaining one, write the definition as it is actually computed, not as it is described.
5. Check whether the same name means the same calculation across documents. It often doesn’t.
6. Agree the final list with the audit committee and decide which to keep.

This is exactly the kind of work Munshi, the close agent in FINAHQ, was built for: it reads what you have already published (annual report, investor deck, results filings and call transcripts) and lists the subtotals you use publicly, so the inventory starts from evidence rather than memory. See how Munshi works.

Keeping the numbers consistent every quarter

Once definitions are fixed, the reconciliation has to be produced every quarter from the same ledger that produces the statutory statements. If the adjusted numbers come from a separate MIS workbook, you have two versions of the truth and a reconciliation problem every close. Build the MPM reconciliation into the same reporting layer as the statements, and keep your management view (in FINK, for example) pointing at the same mapped numbers.

This article is general information, not professional advice. The final notified Ind AS 118 text governs.