Although financial statements and other financial information are presented in accordance with applicable financial reporting frameworks which should result in relevant and reliable information, there sometimes seems to be a demand from users or a desire from issuers for other information that is intended to lead to a better understanding of a company's position and performance. This information is often included in financial statements or documents accompanying the financial statements and normally consists of either re-calculated information already provided or new metrics designed to improve the understanding of that information.

ESMA acknowledges the importance of APMs to assist users in making investment decisions and only recently even the IASB Chairman admitted in a speech that preparers and analysts "may need non-GAAP measures to fine-tune their presentation or assessment of an entity". However, ESMA is concerned about widely diverse additional financial data which in some cases cannot be easily derived from or reconciled back to financial statements. Also, this additional information is often not defined and comparatives are lacking in many cases.

ESMA has therefore developed draft guidelines that address the concept and labels of APMs, guidance for the presentation of APMs and consistency in using APMs. The key requirements of the proposed guidelines are:

1. Issuers should define the APM used and its components as well as the basis of calculation adopted.
2. APMs should be given meaningful labels reflecting their methodology and basis of calculation in order to avoid conveying misleading messages to users.
3. Issuers should disclose all APMs used and their definition in an appendix to the publication.
4. APMs should be reconciled to the most relevant amount presented in the financial statements, separately identifying and explaining each reconciling item.
5. Issuers should explain the context of any APM disclosed so that users can understand what information the APM concerned is meant to provide them with.
6. APMs that are presented outside financial statements should be displayed with less prominence, emphasis or authority than measures directly stemming from financial statements prepared in accordance with the applicable financial reporting framework.
7. When an issuer chooses to present APMs, it should also provide comparatives for corresponding previous periods. 
8. The definition and calculation of the APM should be consistent over time. If that is not the case, an issuer should explain the reasons why the definition and/or calculation of the APM has changed.
9. If an APM is redefined, a prior period is corrected, or the calculation of the APM changes, an issuer should provide additional information to explain those changes, the effect of the change compared to the former APM and restated comparative figures.
10. If an APM ceases to be used, the issuer should explain its removal and the reasons for which any newly defined APM replacing the previous one provides more reliable and relevant information on the financial performance compared with the previous one.

The closing date for responses to the ESMA consultation is 14 May 2014. ESMA expects to publish the final guidelines in the fourth quarter of 2014.

Please click for additional information on the ESMA website:

• Press release
• Proposed ESMA Guidelines on Alternative Performance Measures