FRC review of Alternative Performance Measures by UK companies finds room for improvement
News types: Policies and Responsibilities, Publications, Statements
Published: 7 October 2021
A review by the Financial Reporting Council (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, but not give them greater focus than their GAAP equivalents. Relevant GAAP information can also be obscured by high usage of alternative measures; companies are encouraged to consider the number of APMs that they present.
Other aspects of APM reporting the FRC expects companies to improve include:
- providing an even-handed treatment of gains and losses when classifying amounts as adjusting items;
- ensuring APM reconciliations and calculations are complete and transparent;
- explaining terms used in describing APMs, such as providing ‘underlying results’ or adjusting for ‘non-recurring’ items; and
- providing more detailed information about the cash and tax impact of adjusting items, and on the potential impact of adjustments for multi-year restructuring programmes on future results.
The FRC’s Corporate Reporting Review Director, Carol Page said:
“While the use of APMs can provide investors and other users of accounts with valuable insights into companies’ overall performance, these supplementary measures should not be given greater focus than GAAP measures.
Users of accounts should also be able to clearly understand how APMs have been calculated, the rationale for any adjustments and the inherent limitations of such measures.”