The presence of non-IFRS information in the annual reports of ASX200 companies emphasises the key role that information not determined by accounting standards plays in financial analysis, according to the latest research by KPMG.
Majority of ASX200 companies reporting with non-IFRS information
In a study of a sample of ASX200 companies, the big four firm found that 26 out of 30 entities reported at least one such result in their 2015 annual reports, most of which implied a better performance than the relevant statutory measure.
“Four years ago, ASIC issued Regulatory Guide 230 Disclosing Non-IFRS Information to establish some boundaries around the use of these measures,” noted Kim Heng, KPMG audit partner.
“While this has certainly improved consistency in the market, nonetheless our survey has revealed that the non-IFRS disclosure practices of some of the ASX200 companies could be further enhanced to fully comply with the guidelines.”
Key findings of the report included:
- 86 per cent of companies reviewed reported at least one non-IFRS performance measure in their annual report.
- 69 per cent of these companies reported a non-IFRS measure that implied “better” performance than the relevant statutory measure.
- The most common non-IFRS performance measures used were adjusted net profit after tax (NPAT) and adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA).
“The study identified several areas of improvement needed in terms of complying with RG230,” noted Ms Heng.
“For a start, IFRS information should be presented with equal or greater prominence than the non-statutory measures – yet only 35 per cent of companies consistently discussed their statutory measure prior to the equivalent non-IFRS measure, with some instances where the statutory measure was not even acknowledged.
“Secondly, reconciliations between IFRS and non-IFRS information should be provided, clearly identifying and explaining each item – yet this is not happening in all cases. While all companies provided some form of reconciliation for at least one of their non-IFRS measures, less than 50 per cent provided a narrative or description of each reconciling item.”