Effective communication in financial statements is also supported by considering entity-specific information is more useful than standardised descriptions, sometimes referred to as ‘boilerplate’ [IAS 1 7.6]
Although financial statements are essential to any entity’s financial reporting, the financial statements represent only one of several reports used by entities to communicate decision-useful information. Entities often find that KPIs beyond the ones reported in the financial statements add value to users, in particular, to enhance the users’ ability to predict future earnings. User communities generally apply alternative performance measures (APM) actively in their performance and investment analysis, and, as such, APMs are an important aspect of entities’ communication of financial information.
APMs include financial measures, such as subtotals, presented in the financial statements if they are not defined in the relevant reporting framework. Many APMs, however, are derived by adjusting measures presented in the financial statements and/or by combining such measures, for example, in calculating various ratios, margins, and return measures. While profit measures are typically the most common, measures based on balance sheet items and cash flows are also used in practice.
One reason for the large number of different APMs is the diversity in adjustments made to measures in the financial statements. Profit measures may, for example, be adjusted for a large number of items of income or, what is more often the case, expenses. This includes, but is not limited to impairment charges, depreciation and/or amortization in general, or related to specific assets (e.g., acquired intangible assets), restructuring expenses, other income and expenses (in general or a specific sub-group) and/or fair value changes relating to specific types of assets or liabilities.
Another reason for the number of different APMs is diversity in labeling. For example, a profit measure that has been adjusted for various items may simply be labeled “adjusted”, or it may be labeled as “adjusted for special items/one-off items/items affecting comparability”, or something similar. Alternatively, the label may specifically identify all adjustments that have been made.
alternative performance measures