Investors Call For Better Communication In Financial Reporting

Everyone understands that the IFRSs must be constantly refreshed in response to a fast-changing world. Over the last eight years, investors' interests in financial reporting and supporting information has shifted from achieving short term goals to creating sustainable, long term value. Therefore, the need to update the quality and effectiveness of the communication between entities and their investors seemed pertinent.

So, it's no surprise that the Board focused on the structure of the primary financial statements and management commentary.

Primary financial statements Currently, the primary financial statements are relatively free in terms of form and prescription of subtotals. However, investors need subtotals to measure performance, and therefore the use of self-defined subtotals—non-GAAP measures— increased significantly in recent years.

It's obvious what the problem is—a lack of conformity between entities and industries regarding performance measures, and increased investor confusion about some commonly-used performance indicators that are often calculated differently, e.g. EBITDA. So, the aim of the Board's updates is clear.

New subtotals

First, with a special focus on Statement of financial performance, the Board's plan is to introduce new subtotals, for example:

Operating profit Operating profit and share of profit of integral associates/JVs (if applicable) Profit before financing and income tax (differentiating between financial and non-financial entities). This will split the Statement of financial performance into three sections—operating, investing and financing.

Management performance measures

Second, to increase transparency when using non-GAAP measures, the Board will introduce a new designation called "Management Performance Measures" (MPM) to define these subtotals, which can then be included in the financial statements' notes. However, management will need to explain how MPMs are calculated, why it's important to include this measure in financial statements and reconcile this with the closest corresponding subtotal in the IFRS standard.

Disaggregation guidance

And...