The United Kingdom Financial Reporting Review Panel (FRRP) of the FRC (link to UK Accounting Plus) has identified that many companies report exceptional items on the face of the income statement and provide a subtotal of profit before these items ('underlying profit'). However, the FRC has identified that many companies do not present exceptional items consistently. The quality of reported exceptional items was identified by the Conduct Committee as an “area of concern” in their Corporate Reporting Review Annual Report 2013 (link to UK Accounting Plus).

To encourage improved reporting of exceptional items and to encourage greater consistency the FRRP believes that companies should consider the following in "judging what to include in additional items and underlying profit" (reproduced from the report):

• The approach taken in identifying additional items that qualify for separate presentation should be even handed between gains and losses, clearly disclosed and applied consistently from one year to the next. It should also be clearly distinguished from alternative performance measures used by the company that are not intended to be consistent with IFRS principles
• Gains and losses should not be netted off in arriving at the amount disclosed unless otherwise permitted
• Where the same category of material items recurs each year and in similar amounts (for example, restructuring costs), companies should consider whether such amounts should be included as part of underlying profit
• Where significant items of expense are unlikely to be finalised for a number of years or may subsequently be reversed, the income statement effect of such changes should be similarly identified as additional items in subsequent periods and readers should be able to track movements in respect of these items between periods
• The tax effect of additional items should be explained
• Material cash amounts related to additional items should be presented clearly in the cash flow statement
• Where underlying profit is used in determining executive remuneration or in the definition of loan covenants, companies should take care to disclose clearly the measures used
• Management commentary on results should be clear on which measures of profit are being commented on and should discuss all significant items which make up the profit determined according to IFRS.

The presentation of 'underlying profit' and similar measures is a contentious area in many jurisdictions, e.g. regulators in Australia and New Zealand have issued guides on the use of such measures in corporate communications.

Click for FRC press release (link to FRC website).