Key performance indicators (KPIs) and alternative performance measures (APMs)
Many companies modify the figures produced in their IFRS statements for use as performance measures when reporting internally or externally. These adjusted, normalised or underlying measures are often referred to by regulators as APMs and may also be considered KPIs.
APMs are developed to find a basis for measuring how the business franchise has performed and on which management can base their budgets for later years. Analysts too will use these measures, in their case as a base for forecasts.
APMs are developed to find a basis for measuring how the business franchise has performed and on which management can base their budgets for later years. Analysts too will use these measures, in their case as a base for forecasts.
APMs are used to present performance on a basis which management believes is reflective of the ongoing operation of the business. Mostly these remove the effects of a particular accounting treatment or the costs, losses or profits of an event that occurred during the year. Long experience of advising boards on reporting has persuaded us that, despite the views of some regulators, the majority of managements believe, sensibly, that their measures are reasonable. Investors, in turn, believe the majority of managements, most of the time. This is not to say that there are no disingenuous, or merely overoptimistic managements. These measures are, however, widely used and relied upon, albeit with healthy scepticism.
As management, your aim is to find an appropriate balance of relevance and comparability – both over time and to peers, without resulting in unnecessary complexity. You should consider what adjustments are or might be unpopular with investors and avoid recurrent “one-offs”, which damage credibility over the longer term.
How we can support you
We can help you develop, define and disclose your APMs and KPIs. We can help you consider whether your current suite of KPIs can be rationalised, whether adjustments are or will be acceptable to investor and whether future amendments should be considered. Our experience covers both financial and non-financial KPIs including, but not limited to, those associated with environmental, social and governance (ESG) issues.
This can include:
- Guiding you through the regulatory requirements, disclosure and reconciliation for KPIs;
- Reviewing your suite of KPIs for redundancy or whether they may not all be “key”;
- Holding workshops to consider what might be an optimal suite of KPIs now or in the future at group, or divisional, level;
- Developing non-financial KPIs for leading indicators, new areas of business or emerging issue such as climate change; and
- Assisting with drafting explanations for the reasons for choosing particular adjustments.
Contact us
If you would like to contact us, please use the link below and a member of the Accounting Technical Services team will be in contact.
National contact
Narrative reporting
Pressure for greater transparency from shareholders, not only in the financial statements, but in explaining performance in detail and in more forward-looking areas like strategy and plans for the future is not new.