Exploring Comparability in Disclosure of Non-IFRS Performance Measures

Abstract

We investigate the comparability of non-IFRS performance measures and adjusting items (exclusions) disclosed by companies from eight countries adopting IFRS Standards (Australia, France, Germany, Hong Kong, Italy, Singapore, Sweden and the United Kingdom) in their annual reports for the years 2005, 2008, 2011 and 2013 (1,577 company-years). Presently performance measures may be based on undefined IFRS subtotals (e.g., operating profit, EBIT, EBITDA) or may exclude items from IFRS defined totals (e.g., underlying net profit excludes IFRS line items) reflecting managers’ voluntary disclosure choices. We find some categories of adjustments are similar between countries (e.g., for impairment and merger and acquisition expenses) but the incidence and amount of adjustments vary widely between firms. The type of non-IFRS performance measures disclosed differ by country, likely reflecting prior national practices and positions of security market regulators. Based on our evidence, we conclude the IASB’s consideration of mandatory defined subtotals in the statement of financial performance would necessitate changes in financial statement presentation for companies but should improve comparability between them.

Keywords: IFRS Standards, IASB, primary financial statements, performance reporting, voluntary disclosure, underlying earnings, pro forma earnings, street earnings, non-GAAP earnings, management performance measures, comparability

JEL Classification: G14, G15