Alternative performance measures

Alternative performance measures is about what needs to be improved in financial reporting, more relevance, more transparency, more accuracy, more fair value?

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

What Is Financial Reporting vs. Management Reporting?

Both financial reporting and management reporting play an important role in public as well as privately held companies.

Need a refresher on the major differences? Here’s a quick breakdown, including how companies use the deliverables of both, together, to drive improved performance.

Differences in Audiences, Content, and Frequency

Financial reporting is focused on the disclosure of financial results and related information to internal and external stakeholders about how a company is performing over a specific period of time. Financial reports are usually issued on a quarterly and annual basis.

Management reporting, on the other hand, includes financial and operational information that is disclosed only to internal management to be used to make decisions within the company. Management reporting is typically done monthly or more frequently, depending on the industry and organization.

Differences in Guidelines and Formats

Financial reporting is performed according to generally accepted accounting standards, such as IFRS. The typical financial statements for a business include the balance sheet, income statement, statement of changes in equity, cash flow statement and notes

Conversely, management reporting is not required to be performed in accordance with accounting guidelines and can include a variety of reports and delivery mechanisms. This may include the following:

Both financial reporting and management reporting play an important role in public as well as privately held companies.

Need a refresher on the major differences? Here’s a quick breakdown, including how companies use the deliverables of both, together, to drive improved performance.

Differences in Audiences, Content, and Frequency

Financial reporting is focused on the disclosure of financial results and related information to internal and external stakeholders about how a company is performing over a specific period of time. Financial reports are usually issued on a quarterly and annual basis.

Management reporting, on the other hand, includes financial and operational information that is disclosed only to internal management to be used to make decisions within the company. Management reporting is typically done monthly or more frequently, depending on the industry and organization.

Differences in Guidelines and Formats

Financial reporting is performed according to generally accepted accounting standards, such as U.S. GAAP. The typical financial statements for a business include the balance sheet, income statement, statement of changes in equity, and cash flow statement.

Conversely, management reporting is not required to be performed in accordance with accounting guidelines and can include a variety of reports and delivery mechanisms. This may include the following:

  • Divisional or product-line profit and loss statements Alternative performance measures
  • Cost center manager reports Alternative performance measures
  • Actual vs. budget variance reports Alternative performance measures
  • Product or customer profitability reports Alternative performance measures
  • KPI reporting Alternative performance measures
  • Management dashboards and scorecards Alternative performance measures

How Both Types of Reporting Help Improve Performance

Both private and publicly held corporations typically prepare a package of information for their boards of directors meetings. These “board books” include financial statements and other operational information about the business. This additional information can be in the form of charts, graphs, tables, and textual commentary.

All of this information is designed to help managers, executives, and board members make decisions that impact the future performance of the organization. This can include mergers and acquisitions, hiring, allocating resources, investing in new ventures, or downsizing and divesting businesses as needed.

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Alternative performance measures

Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

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