IAASA, Ireland’s accounting enforcer, has published its report on the results of a survey undertaken on Alternative Performance Measures (APMs) that Irish listed companies included in their 2016/17 annual accounts.
APMs, sometimes referred to as key performance indicators or KPIs, are measures used by companies to highlight their performance and these measures often are based on amounts included in the audited accounts but then adjusted to exclude specific items such as non-recurring costs.
One of the main objectives of the survey was to assess the extent of compliance by listed companies with the the European Securities and Markets Authority (‘ESMA’) Guidelines on Alternative Performance Measures (‘ESMA APM Guidelines’).
The survey covered the 2016/17 annual accounts of twenty-nine companies listed on the Irish Stock Exchange.
IAASA’s survey found that 126 different APMs were used by companies in their 2016/17 annual accounts. The most common APMs used by issuers included Earnings before Interest Tax Depreciation and Amortisation (EBITDA), Free Cash Flow, Adjusted Earnings per Share and Net debt.
The survey found instances of good practice by companies in their use of APMs. Conversely, other instances were detected where the level of compliance with the ESMA APM Guidelines was below par. For example, some companies using APMs failed to include any definition of the APM, did not reconcile it to the equivalent amounts in the annual accounts and did not give prior year comparative amounts. Other companies did not explain why they used the APM in question. All these are obligations on companies using APMs under the Guidelines.
Twenty-six of the twenty-nine companies whose annual accounts were included in this survey used adjusted profit measures. The thematic survey identified a total of forty-two different measures of adjusted profit measures used by companies in their annual accounts, including for example:
- Adjusted operating profit before property profit;
- Organic EBITDA;
- Operating profit before exceptional items;
- Operating profit before impairment charges;
- Trading profit; and
- Underlying net profit.
As part of its programme of examining accounts of listed companies, IAASA has successfully received a number of undertakings from company directors to increase compliance with the ESMA APM Guidelines regarding defining APMs, labelling APMs, providing reconciliations to the relevant accounts-based measures, explaining the rationale for using APMs, and ensuring APMs are consistently presented.
The document is available here.