The topic of non-IFRS measures regularly appears in the financial press. This is not surprising given the importance of these measures for directors and management in explaining performance to investors, providing useful insights and telling a story that is unique to their entity. Given the impact COVID-19 is having on global economies, entities have been drawing on these measures more than ever before, and this has not escaped our regulator’s attention.
The importance of non-IFRS performance measures to a user of the financial report is further highlighted in the proposed new IFRS® Standard that will replace IAS 1/AASB 101 Presentation of Financial Statements. The General Presentation and Disclosures Exposure Draft (the ED) seeks to mandate disclosure of non-IFRS performance measures in the notes to the financial statements along with supporting disclosures. The ED extends beyond non-IFRS performance measures and looks to re-shape the structure of the primary statements.
With this evolving landscape, KPMG undertook a review of 72 ASX200 entities’ annual reports for the 2019 reporting period with a focus on the use of non-IFRS measures along with some of the more significant aspects of the ED. We considered what is happening in practice now and how this may change under the ED proposals. We supplemented this with an additional 35 ASX200 annual reports for the 2020 reporting period to better understand how these disclosures have been impacted by COVID-19.
With the continued prevalence of non-IFRS measures, along with heightened regulator focus, the IASB Board proposals should increase investor confidence and bring more discipline and transparency to their use.
Our review showed that there is a lack of consistency and comparability in the structure of the income statement presented by entities.
The intention of the ED is to reduce the diversity in practice and enhance transparency. The key proposals related to income statement presentation are:
Our review showed there is diversity in classifying interest and dividends in the statement of cash flows, which is not surprising given the accounting policy choice in AASB 107 Statement of Cash Flows.
To improve comparability between entities, the ED proposes eliminating the options for classifying interest and dividend cash flows. These proposals will likely result in significant changes for non-financial entities compared to existing practice.