Redeliberations continue on Primary Financial Statements project

Keywords: Mazars, Thailand, IFRS, IASB, Exposure Draft,MPM

18 March 2022

This month, the IASB continued its redeliberations on management performance measures (MPMs). Readers will remember that MPMs are performance measures used by management and strictly defined by the proposed standard, which an entity uses in communications outside IFRS financial statements. The IASB is hoping to establish a framework for MPMs, according to which certain disclosures would be required in the notes to the financial statements.

In January, the Board made a number of decisions (still tentative at this stage, to be confirmed in the final standard) regarding the following disclosures that are required in the notes by the ED:

• an explanation of why the management performance measure communicates management’s view of performance, plus an explanation of:
  • how the measure is calculated;
  • how the measure provides useful information about the entity’s performance;
• a reconciliation between the management performance measure and the most directly comparable subtotal or total in the income statement.

These two proposals were unanimously confirmed at the January meeting.

As regards the first point, the Board also decided to provide additional application guidance to ensure that there is a logical connection between “why” an MPM communicates management’s view of performance, and “how” the MPM is calculated and “how” it provides useful information about the entity’s performance. In practice, in certain situations, the explanations of “how” would refer to the individual items in the reconciliation between the MPM and the most directly comparable subtotal or total.

As regards the second point, the Board also decided that for each reconciling item, an entity should also disclose the corresponding amount(s) of each line item in the income statement. The ED does not specifically require entities to identify the effect of each reconciling item on individual line items in the income statement, although the accompanying illustrative example of the ED does do this.

The Board decided not to require entities to present the reconciliation in a columnar format (i.e. starting with the MPM and showing how the corresponding total or subtotal is arrived at) although this format is used in the illustrative examples.

The IASB has not yet reached a conclusion on the proposal to require the disclosure of the tax and non-controlling interest effects of each item disclosed in the reconciliation (cf. above).

Readers will remember that, according to the ED, an entity shall determine the tax effect of each item in the reconciliation on the basis of a reasonable pro rata allocation of the entity’s current and deferred tax in the country or countries concerned, or shall use another method if that results in a more appropriate allocation in the circumstances.

Despite the simplified approach set out in the ED, the IASB’s proposal had a lukewarm reception. Preparers in particular noted that this information would be too costly to produce. The Board’s discussions in January also revealed differences of opinion on the matter.

It has now asked the staff to carry out additional research to identify the methods used to calculate these amounts by companies that already disclose this type of information.