The European Securities and Markets Authority (ESMA) on 20th December published a report on European Union (EU) issuers’ use of Alternative Performance Measures (APMs) and their compliance with ESMA’s APM Guidelines.
The report shows that there is significant scope for improvement as only a few of issuers comply with all principles of the Guidelines in their:
- annual earnings results;
- management reports; and/or
- prospectuses.
ESMA asks issuers to improve their disclosures regarding APMs.
In particular, issuers should enhance their reconciliations, definitions and explanations in relation to all APMs used, the ESMA said in a report.
The ESMA also highlights that ratios and subtotals included inside financial statements may also fall within the definition of an APM and thus should comply with the Guidelines.
The Report highlights that the use of APMs is widespread in all Sectors and within all regulated documents.
Significant diversity exists in the number and type of APMs used, as well as in their labels and definitions.
The most frequently used APMs include:
- Earnings Before Interest & Tax (EBIT);
- Operating results;
- Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA); and
- Net-debt.
It said that the overall objectives of the study were to gather evidence on the use of APMs, to assess how EU issuers have applied the APM Guidelines since they became effective and to provide informed input into the work of the IASB (International accounting Standards Board).
The study aimed at;
- Identifying the APMs used by issuers inside and outside financial statements
- identifying the definitions of such APMs (e.g. the most common adjustments to
- Generally Accepted Accounting Principles figures or to non-adjusted APMs); and
- Assessing the level of issuers’ compliance with the Guidelines.
