ESMA had published the proposed guidelines in February 2014 with the aim of improving the transparency and comparability of financial information, reducing information asymmetry among the users of financial statements, contributing to coherent use and presentation of alternative performance measures (APMs), and restoring confidence in the accuracy and usefulness of financial information.

Overall, the FRC does not support ESMA's proposals, for a number of key reasons:

• They do not consider that it is appropriate for ESMA, as an enforcement authority, to be providing guidance on the interpretation of accounting standards.  They believe that the presentation of alternative performance measures within financial statements is an area in which it is more appropriate for the International Accounting Standards Board (IASB) to provide guidance, something which it is already considering as part of its disclosure framework project. In particular the recent Exposure Draft ‘Disclosure Initiative – proposed amendments to IAS 1’ addresses principles for fair presentation of non-GAAP sub-totals.
• They note that the proposed guidelines are intended to be mandatory.  They do not believe that ESMA has clearly articulated why the existing approach of using best practice recommendations, as issued by the Committee of European Securities Regulators (CESR), is inadequate and the reasons why these proposals are a better solution.
• They also note that the FRC's conduct committee, the UK enforcement body, does not have the legal power to enforce mandatory guidelines, and suggest that ESMA consult more widely on the powers of similar bodies across Europe.
• They believe that the scope of the current proposals is too broad.
• They do not agree with the rules-based approach adopted in the proposals, suggesting that a principles-based approach is often more effective.
• They do not agree with the proposal that alternative performance measures should always be presented with less prominence than GAAP measures.

The full response letter can be downloaded from the FRC website.