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FRC responds to IOSCO Proposed Statement on Non-GAAP Financial Measures

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21 Nov 2014

The Financial Reporting Council (FRC) has published its response to the International Organization of Securities Commissions (IOSCO) consultation on its proposed Statement on Non-GAAP Financial Measures (NGFMs). Overall the FRC is generally supportive of the objective of the proposed Statement. However, they are concerned about the overlap between this project and the recent European Securities and Markets Authority (ESMA) consultation on Alternative Performance Measures.

In its response to the consultation, the FRC agrees with IOSCO's overall view that NGFMs should be clear and not misleading. They support the fact that the proposed Statement encourages a focus on clear communication rather than setting out prescriptive rules. They are also pleased that the scope of the Statement excludes financial statement disclosures and GAAP measures provided in other documents.

The FRC's main concern regarding the proposals relates to ESMA's intention to issue guidelines in this area following their recent consultation and the desirability of a consistent approach between ESMA and IOSCO. With this in mind, they recommend that ESMA and IOSCO work together to produce a single set of guidelines, or at least to ensure that both sets of guidelines are consistent.

Some of the FRC's detailed comments include:

  • A recommendation that all NGFMs required to be presented by law or regulation should be outside the scope of the Statement, rather than just those required by securities regulators.
  • A concern that the scope of the proposed Statement is very broad, in particular that it covers prospectuses which often contain a significant amount of non-GAAP information.
  • The lack of a reference to materiality in the proposed Statement.
  • The fact that, for some NGFMs, it may not be possible to provide a comparable GAAP measure and a reconciliation to it, as required by the proposed Statement.

The full response can be downloaded from the FRC's website.

As well as the proposed ESMA and IOSCO guidelines, other recent pronouncements regarding NGFMs include the FRC's own statement on the reporting of exceptional items and the recent Guidance on Supplementary Financial Measures from the International Federation of Accountants (IFAC).

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