A review by the Financial Reporting Council (the “FRC”) into the use of Alternative Performance Measures (“APMs”) by UK-listed companies has found that companies need to be more transparent about their use, and linkage to their IFRS or UK GAAP results (“GAAP results”).
The FRC’s review found that, while companies generally provided good quality APM disclosures, their context needs to be better explained, particularly as profit based APMs tended to be more favourable than their GAAP results. Companies should clearly define their APMs and explain why they are needed, and not give them greater focus than their GAAP equivalents. The FRC noted that relevant GAAP information can also be obscured by high usage of alternative measures. Therefore, companies are encouraged to consider the number of APMs that they present.
Other significant observations made in the report include:
- When adjusting for the effects of significant multi-year restructuring programmes, companies did not disclose relevant information such as cumulative costs, total expected cash costs and expected durations of the programmes.
- Many companies used terms such as ‘underlying profit’, ‘non-underlying items’, and ‘core operations’ but these terms were not explained.
- Disclosures about tax relating to individual categories of adjusting items were not always provided, and APM accounting policies rarely explained tax matters, including companies’ policies for classifying unusual tax items as adjusting items.
- It was also noted that certain adjusting items (e.g., restructuring and litigation costs) had potential cash implications, but companies did not always disclose the cash flow impacts of these adjustments.
A link to the full report is available here.
The FCR has published its latest project report outlining what investors want to understand from corporate reporting.
FCR's latest project report outlines what investors want to see from corporate reporting.
FRC Reporting Lab publishes report on reporting on stakeholders, decisions and S172.
FRC Reproting Lab publishes report on reporting on stakeholders, decisions and S172.