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The need to address presentation of alternative performance measures (APMs) — sometimes referred to as non-GAAP measures — in various types of communications by issuers to the investors’ community is a timely and important issue. APMs can add value to an entity’s communication with investors by providing insight into the metrics that management uses to operate the business and, currently, the use and presentation of APMs, whether included inside financial statements or outside, are widespread.
However, there is diversity in how these are used and described in Europe, as well as around the world. The lack of guidance in this area and resulting diversity may limit or diminish the usefulness of APMs (or in worst cases lead to confusing or misleading information for users). In that respect, we would support the development of commonly shared guidelines on the presentation of, and related disclosures about, APMs, whose objective would be ensuring the quality, transparency and usefulness of the information provided to users.
Deloitte notes that debates around the presentation of, and information about, APMs are not just circumscribed to Europe. Several national regulators around the world have taken action on the subject in recent years (e.g. in Australia, in Canada, as well as in Europe). The IFAC PAIB also released, in February 2014, a consultation for a draft International Good Practice Guidance on “Developing and Reporting Supplementary Financial Measures—Definition, Principles, and Disclosures”. Furthermore, Deloitte notes that the IASB decided in April 2014 to undertake a research project, as part of the Disclosure Initiative project, on the presentation and disclosure of non-GAAP financial measures within IFRS financial statements.
Deloitte also understands that there are discussions currently taking place within IOSCO with respect of gathering together, at a global level, regulators’ views with respect to the presentation of APMs and related disclosures.
While Deloitte agrees with many of ESMA’s proposals related to the presentation of, and information on, APMs, it believes that some of the principles need to be laid out more clearly before finalisation of the project. In that respect, in order to better understand the guidelines’ proposals and their consequences, it would have been helpful if ESMA had explained more thoroughly why the current CESR Recommendation on APMs needs revisiting, what aspects of the CESR Recommendation would be affected and why. Deloitte therefore suggests that such explanations are made available at some stage. Deloitte´s most significant concerns with ESMA’s proposed APM guidelines relate to the scope of documents to which the APM guidelines would apply as well as the type of APMs that would be captured in the proposed scope.
Scope of documents to which the APM guidelines would apply
Deloitte considers that the proposed APM guidelines are not sufficiently explicit with respect to the types of documents to which they would apply and how this should be done. As a result, Deloitte´s understanding is that they may apply to a scope of documents larger than those that National Competent Authorities (NCA) would usually review (e.g. analyst presentations, brochures including financial measures, etc.). While Deloitte can understand the desire that APM guidelines apply to any document used to communicate with the investors’ community, Deloitte questions how their application could be enforced if the scope of documents to which they apply goes beyond the reach of NCA (or auditors). Therefore, Deloitte recommends that ESMA should clarify the scope of documents to which the proposed guidelines would apply.
Deloitte suggests that the guideline on APMs should be limited to the presentation of, and information about, APMs that are financial measures. In addition, the financial measures captured should only be those that have been prepared using financial data underlying the preparation of an entity’s historic, current or future financial statements (noting that such data may or may not have been presented in a disaggregated manner in the historic/current financial statements). This is because the primary objective sought is the enhancement of the quality of financial information provided to users. As a result, the APMs that should be of primary focus at this stage should be those that are presented to bring additional relevant information to the users about the understanding of an entity’s historic, current or future financial performance.