This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

FRC publishes thematic review findings on APMs

  • FRC Image

11 Oct 2021

The Financial Reporting Council (FRC) has published the results of its thematic review into the use of Alternative Performance Measures (APMs) by UK-listed companies. The review identifies areas of good practice, opportunities for improvement and areas to be avoided when using APMs.

A sample of 20 companies' annual reports from different industry sectors was selected for review.  It was found that, generally disclosures around the use of APMs were of good quality.  The FRC saw more companies providing reconciliations of APMs to their equivalent IFRS or UK GAAP measures and also some improvement in the labelling of APMs and in their definitions.  However, against these areas of improvement the FRC also found that companies in the sample:

  • provided greater prominence or authority to APMs over GAAP measures in some areas of reporting (c50% of the sample reviewed).
  • sometimes obscured relevant GAAP information by using large numbers of APMs.  The FRC encourages companies to consider the number of APMs that they present in this regard, for example removing those multiple variants of similar APMs or avoiding using APMs with only immaterial adjustments to IFRS measures.
  • adjusted for more costs than income when calculating profit-based APMs.  In the sample reviewed, 19 of the 20 excluded more expenses than income from their APMs with the result that they reported more favourable adjusted results than GAAP results.  The FRC reminds companies to be even-handed in the treatment of gains and losses when classifying amounts as adjusting items.
  • could have improved explanations for APMs by providing more granular information. 
  • provided reconciliations for the most commonly used APMs but there were examples where reconciliations for some APMs were omitted, where explanations for reconciling items could have been improved or where APMs were not reconciled to a GAAP number.
  • adjusted for the effects of significant multi-year restructuring programmes, but they did not disclose relevant information such as cumulative costs, total expected cash costs and expected durations of the programmes.
  • used terms such as 'underlying profit', 'non-underlying items' and 'core operations' without an explanation of what these terms meant.
  • did not provide disclosures about tax relating to individual categories of adjusting items
  • did not always disclose the cash flow implications of certain adjusting items such as restructuring and litigation costs.

The FRC expects companies to consider the better disclosures in the report in the forthcoming reporting season.  It expects preparers to:

  • Ensure that APMs are not presented in ways that give them greater prominence than amounts stemming from the financial statements.
  • Avoid comments that imply APMs have more authority than amounts stemming from the financial statements.
  • Provide specific, tailored explanations for the inclusion of individual APMs in their reports, as well as the basis for classifying amounts as adjusting items.
  • Explain terms such as ‘underlying profit' or 'core operations' and the basis for identifying adjustments as 'non-underlying' or non-core’.
  • Ensure that APMs are reconciled to the most directly reconcilable line items, subtotals or totals presented in the financial statements, and not to other APMs.
  • Disclose relevant information for any significant multi-year restructuring programmes that are classified as adjusting items.
  • Disclose the cash flow impact of material adjusting items and exceptional items.
  • Explain tax matters relating to APMs by:
    • Including tax matters in their accounting policies for APMs (including accounting policies for classifying material or unusual tax amounts as adjusting items).
    • Providing granular information on the effective tax rate on adjusting items, where necessary.

A press release and the full report is available on the FRC website.  A webinar to discuss the report will be held on October 20.  A press release including details of how to register for the webinar is available on the FRC website.  

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.