ESMA publishes final guidelines on alternative performance measures

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30 Jun 2015

The European Securities and Markets Authority (ESMA) has published its final Guidelines on Alternative Performance Measures (APMs) for listed issuers. The guidelines apply to issuers with securities traded on regulated markets, and persons responsible for drawing up a prospectus. They are effective from 3 July 2016.

In February 2014, ESMA published proposed guidelines to improve the transparency and comparability of financial information, reduce information asymmetry among the users of financial statements, and contribute coherent use and presentation of alternative performance measures. However, respondents found that compliance with the proposed guidelines would increase the disclosure overload, especially since ESMA had proposed a very ambitious scope. To respond to the criticism, ESMA has revised the scope of the proposed guidelines and amended the definition, the presentation and the reconciliation principles for the APMs. Financial statements have now been excluded from the scope, considering that they are already covered by the applicable financial reporting framework.

The below is a short extract of the main points of the new guidelines.

  • An APM is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.
  • Issuers should define the APM used and its components as well as the basis of calculation adopted.
  • Issuers should disclose the definitions of all APMs used in a clear and readable way.
  • APMs should be given meaningful labels reflecting their methodology and basis of calculation in order to avoid conveying misleading messages to users.
  • APMs should be reconciled to the most relevant amount presented in the financial statements, separately identifying and explaining each reconciling item.
  • Issuers should also present the most directly reconcilable line item, subtotal or total presented in the financial statements relevant for that specific APM.
  • Issuers should explain the use of APMs in order to allow users to understand their relevance and reliability.
  • APMs should be accompanied by comparatives for the corresponding previous periods.
  • Issuers should present reconciliations for all comparatives presented.
  • The definition and calculation of an APM should be consistent over time. In exceptional circumstances where issuers decide to redefine an APM, the issuer should:
    • Explain the changes;
    • explain the reasons why these changes result in reliable and more relevant information on the financial performance, and
    • provide restated comparative figures.
  • If an issuer stops disclosing an APM, the issuer should explain the reason for considering that this APM no longer provides relevant information.
  • Where permitted, disclosure principles set out in the guidelines may be replaced by a direct reference to other documents previously published which contain these disclosures on APMs and are readily and easily accessible to users.

The above guidelines will be translated into the official languages of the EU and will be published on ESMA's website in the course of 2015. They are effective for documents issued on or after the effective date of 3 July 2016.

The guidelines are included as Annex IV in the Final Report on the ESMA Guidelines on Alternative Performance Measures published today. The report also offers an executive summary, general remarks, a feedback statement, and a cost-benefit analysis. Please click to access the final report on the ESMA website.

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