Adam Deller is a financial reporting specialist and lecturer



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Multiple-choice questions

Each year, my final-year students are set the task of selecting a company of their choice to write a report on. This report involves producing an analysis of the company’s published financial information, a discussion of a current financial reporting issue and an evaluation of a relevant accounting standard. Only at this point do the students qualify to sign the wall in my office with their favourite standard.

As the students take a deeper dive into a company’s published financial information, it is not long before a number of them come knocking on my door with varieties of the same question: ‘Which profit figure should I be looking at?’

The method of calculation should be in the financial statements and not only explained via individual communications

This lack of clarity and comparability between companies is something that the International Accounting Standards Board (IASB) has been looking to address for a while in its Primary Financial Statements project. As covered previously, the largest element of this looks at the statement of profit or loss, proposing some new subtotals and sections.

In addition to addressing the consistency of presentation in the statement of profit or loss, the IASB also acknowledges the issue of non-GAAP performance measures being produced by entities. Feedback to the IASB (very much supported by my students) is that these measures can provide useful insight into the business but can sometimes lack transparency.

Last year I sat with one student looking at a non-GAAP measure provided by a very well-known company. It was unclear how this reconciled to other figures or even how it was calculated. Upon contacting them, we received a detailed and helpful response explaining how the method of calculation had changed in the year. While this provided clarity, the fact remains that this should be in the financial statements and not only explained via individual communications.

The IASB acknowledges that there are many non-GAAP measures that are included in financial statements

What is an MPM?

The IASB proposal defines a management performance measure (MPM) as a subtotal of income and expenses that is not specified by IFRS that:

  • communicates management’s view of an aspect of an entity’s financial performance, and
  • is used in public communications outside of the financial statements (such as management commentary, investor presentations but not including oral communications or social media posts, which are hard to monitor).

In identifying the information thatt should be subject to the new proposals, the IASB focused on these subtotals reflecting elements of income and expenses. This is due to the fact that the most common non-GAAP measures related to adjusted profit figures, with the most common by far being ‘adjusted profit’, ‘adjusted operating profit’ and ‘adjusted EBITDA’.

In doing this, the IASB acknowledges that there are many non-GAAP measures that are included in financial statements. The proposals are not aimed at addressing all of these, and the IASB will not classify measures in the statement of financial position or cashflows as MPMs. In addition to this, non-financial measures (such as numbers of subscribers or customer satisfaction) will not be covered by the proposals.

What about EBITDA?

The IASB has attempted to address the often controversial measure of EBITDA (earnings before interest, tax, depreciation and amortisation), proposing to define an IFRS subtotal of ‘operating profit before depreciation, amortisation and specified impairments’ (referred to as OPDAI). This subtotal would not be compulsory but would be regarded as an IFRS-defined subtotal. This means that if a company does use this subtotal, there will be no MPM disclosure required.

The IASB will not explicitly prohibit EBITDA as a measure of this but states that it is rarely a useful measure. It is hoping that OPDAI catches on and replaces what is currently seen as EBITDA.


The major requirement is that companies provide a reconciliation between the MPM and the most directly comparable subtotal or total specified by IFRS Standards. Research by the IASB found that 70% did have a reconciliation to a measure specified by IFRS Standards but with limited or no information on tax effects. Therefore, the proposed reconciliation should also include the income tax effect and effect on non-controlling interests.

The proposals will not see an end to the days of ‘adjusted profit’ figures in financial statements


A company would be required to explain how the MPM is calculated. If the calculation has changed in the year, an explanation of why the change has been made and the impact of this should be provided.


The disclosures of the MPM should explain how the measure provides useful information about the entity’s performance. This explanation should also refer to individual reconciling items where necessary. As part of this, companies will provide a statement that the MPM provides management’s view that isn’t necessarily comparable with other measures provided by other entities.

In summary, the proposals aim to provide greater transparency in some of the non-GAAP measures used by entities but will not see an end to the days of ‘adjusted profit’ figures being shown in financial statements. While the reconciliations may help identify what is in the measure, I fear the question ‘which profit figure should I be looking at?’ is likely to remain.

Fundamentals of IFRS