During his presentation, Mr Hoogervorst explored “whether IFRS Standards provide sufficient criteria by which performance can be judged by users of financial statements.” He noted the increasing use of non-GAAP measures and research showing that these measures are becoming increasingly misleading. Mr Hoogervorst said:

The fact is that IFRS Standards prescribes very little in the way of formatting the income statement. Companies have considerable freedom in the way they present the components of income that make up profit or loss. As a result, there is little comparability above the bottom line, making it difficult for users to judge performance.

He went on to say that securities regulators are primarily responsible for cutting back the use of non-GAAP measures but that the IASB “should also look at its own role in this matter.” He admitted that the IASB provides “too little guidance” in formatting the income statement. He also suggested “potential remedies” for IASB consideration:

• Defining more subtotals in the income statement;
• Providing a principle-based definition of operating income which does not allow for obfuscating restructuring or impairment charges;
• Creating a “rigorous definition” of earnings before interest and tax (EBIT);
• Looking for better solutions for some elements of income and expense that are currently parked in other comprehensive income;
• All of the above and more.

Mr Hoogervorst concluded:

[U]ltimately the number that counts most is the unadjusted bottom line, where all elements of income come together, both recurring items and exceptional items, whatever those may be. No-one can predict the extent to which seemingly extraordinary elements of income are recurring and not. That is why it is important that the bottom line is as inclusive as possible and that it shows everything, warts and all.

The full text of Mr Hoogervorst’s speech is available on the IASB’s Web site.