EFRAG's comment letter on the IOSCO proposals is based on the consultation process that it undertook to develop its response to ESMA’s Consultation Paper - Guidelines on Alternative Performance Measures.

In its response letter, EFRAG notes that, in its view, non-GAAP measures can provide useful information to users when properly used and presented, and can assist investors in gaining a better understanding of a company's financial performance and position. It therefore supports the idea that non-GAAP financial measures should be clearly defined and explained by preparers, unbiased and presented consistently over time to improve the understanding of the performance by users of financial statements.

However, EFRAG does not believe that the proposed statement articulates clearly enough the underlying principle behind its proposals, and that this could result in lengthy disclosures that contain relatively little valuable information. While it welcomes the fact that the proposed statement would not apply to non-GAAP measures reported in the financial statements, it believes that the scope of the proposed statement should exclude further items, including:

• measures which are derived from the primary financial statements but presented outside those statements and either:
• the definition of which is self-evident from the name used; or
• are merely totals or subtotals of measures contained directly within the financial statements;
• the contents of prospectuses; and
• other documents containing regulated information required by a regulator other than a securities regulator, for example a bank or insurance regulator.

While IOSCO proposes that non-GAAP measures should be given 'equal or less' prominence than GAAP measures, EFRAG believes that this may effectively impose a 'ceiling' on the amount of voluntary information that an entity may disclose, regardless of whether such information is useful to users. EFRAG recommends that instead the final statement should focus on ensuring that non-GAAP measures are not given undue prominence.

Proposed disclosures

In relation to the disclosure requirements that are proposed by IOSCO, EFRAG welcomes the fact that the proposals are not overly prescriptive, in particular that they allow incorporation of disclosures by reference, helping to avoid unnecessary repetition. However, they are concerned by the proposed requirement that a quantitative reconciliation must be given from each non-GAAP measure to the most directly comparable GAAP measure, as some non-GAAP measures are based on sources other than conventional accounting, or may be forward-looking. In these situations EFRAG does not believe that it will be practicable to provide a quantitative reconciliation and that a qualitative disclosure may be more appropriate.

The full comment letter can be downloaded from the EFRAG website.