Many listed companies quote a headline number that is not in their statement of profit or loss. Adjusted operating profit, underlying EBITDA, core earnings: the labels vary, but the purpose is the same. Management wants the market to see performance its own way. IFRS 18 brings many of those numbers inside the audited financial statements as management-defined performance measures, or MPMs. The hard part is knowing which of your subtotals the definition actually catches.
Why the definition matters
Once a subtotal is an MPM, it comes with disclosure obligations that sit in the notes and fall within the scope of the audit. Miss one and the note is incomplete. For finance teams and for actuaries who present insurance results to investors, the first question is simply this: what makes a subtotal an MPM?
Public use and management’s view
The standard looks at where a measure appears and what it is meant to convey. How public does a communication have to be? Does quoting a measure in an investor presentation tell you anything about whose view it reflects, and can an entity ever argue the opposite? The lesson works through the presumption the standard sets and what it would take to rebut it.
The subtotals the standard rules out
Some subtotals sit outside the definition however prominently they are quoted. Which ones, and why? How does a subtotal that IFRS already requires differ from one management chooses to build? And where do familiar insurance and banking measures fall?
One retailer, every candidate tested
The lesson follows a South African retailer of coffee machines and servicing contracts through a full year. Its statement of profit or loss presents several subtotals, and it quotes adjusted measures in public. Each candidate goes through the definition in turn, so you can see which test settles each one. Every amount is worked in Rand.
What the disclosure looks like
If a measure qualifies, what does the note have to say, and how does it connect the measure back to the figures IFRS defines?
Open the IFRS 18 management-defined performance measures lesson on Amatle Institute and test each subtotal for yourself.
Questions about this topic
What is a management-defined performance measure under IFRS 18?
It is a particular kind of subtotal that management builds and quotes, and IFRS 18 sets out a definition with several parts that a measure has to satisfy before it counts. Which part settles the question for a typical adjusted profit figure? The lesson takes a retailer's subtotals through the definition one at a time, so you can test each candidate for yourself.
Does using a measure in an investor presentation make it an MPM?
Public use matters, because the standard links it to a presumption about management's view, but it is not the whole test. The lesson shows how the presumption works and what an entity would need to rebut it.
Which subtotals can never be MPMs?
IFRS 18 rules some subtotals out however they are used. The lesson asks which ones, why the standard excludes them and how adjusted measures built on them are treated.
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IFRS and SAM, one requirement at a time
Each week you get the Institute's new articles: one requirement of IFRS 17, IFRS 9, IFRS 15, IFRS 18 or SAM, worked on a South African case. You start with the free IFRS 18 readiness checklist, ten areas to work through before IFRS 18 takes effect, each with its paragraph reference.