IASB decides management performance measures

Following the first redeliberations on the Primary Financial Statements project in March 2021, the International Accounting Standards Board (IASB) has, as expected, gone on to discuss potentially expanding the scope of its requirements for management performance measures (MPMs). The 2019 exposure draft specified that certain minimum disclosures on MPMs would be required, to be presented in a single note to the financial statements.

Keywords: Mazars, Thailand, IFRS, IASB, MPMs, ESMA

20 August 2021

The IASB decided in March that it would explore possible approaches to expanding the scope of MPMs, beyond what was specified in the exposure draft. The exposure draft defined MPMs as including only certain subtotals of income and expenses in the statement of profit or loss, namely those that:

  • are used in public communications outside financial statements;
  • complement totals or subtotals “specified” by IFRS standards (in particular in accordance with the future General Presentation and Disclosures standard); and
  • communicate to users of financial statements management’s view of an aspect of an entity’s financial performance.

Primarily in order to avoid having to put a new exposure draft out for comment, which would significantly delay the project, the IASB tentatively decided to stick with its original proposals, but to include the numerator or denominator of a ratio in the scope of its requirements for MPMs, if that numerator or denominator meets the definition of an MPM.

This would thus include subtotals of income and expenses that are used solely for a ratio, such as adjusted EBITDA used solely in an adjusted EBITDA/net debt ratio. The IASB hopes that this will increase transparency and discipline in disclosures on MPMs.

The IASB has also tentatively decided not to expand the scope of MPMs to include the following:

  • measures based on line items presented in the statement of profit or loss;
  • measures based on the cash flow statement;
  • measures based on the statement of financial position;
  • ratios.

In practice, this means that widely used measures such as free cash flow and net debt will continue to be excluded from the IASB’s definition of MPMs. However, they will still be covered by guidelines from regulators such as ESMA on alternative performance measures (APMs).