Alternative performance measures: UK’s FRC sets out ways to improve transparency

Companies should provide information for investors to understand clearly APM calculations, the rationale for adjustments, and their limitations.

Companies need to be more transparent about their use of alternative performance measures (APMs) and their linkage to their IFRS or UK GAAP results, the UK Financial Reporting Council (FRC) said Thursday.

In its Thematic Review: Alternative Performance Measures, the FRC said that companies should clearly define their APMs and explain why they are needed, but not give them greater focus than their GAAP equivalents — as profit-based APMs tended to be more favourable than company GAAP results.

The regulator said that relevant GAAP information can be obscured by high usage of APMs, so companies should consider the number of APMs they present.

To improve other aspects of APM use, the FRC said companies should:

  • Provide an even-handed treatment of gains and losses when classifying amounts as adjusting items.
  • Ensure APM reconciliations and calculations are complete and transparent.
  • Explain terms used in describing APMs, such as providing "underlying results" or adjusting for "non-recurring" items.
  • Provide more detailed information about the cash and tax impact of adjusting items, and on the potential impact on future results of adjustments for multiyear restructuring programmes.

The FRC's corporate reporting review director, Carol Page, said: "While the use of APMs can provide investors and other users of accounts with valuable insights into companies' overall performance, these supplementary measures should not be given greater focus than GAAP measures."

She added that users of accounts "should also be able to clearly understand how APMs have been calculated, the rationale for any adjustments, and the inherent limitations of such measures".

Oliver Rowe ( is an FM magazine senior editor.