IOSCO has published its Statement on Non-GAAP Financial Measures, a report setting out its final statement on the disclosure of non-GAAP financial measures. The statement aims to provide issuers with a frame of reference for good presentation of financial measures other than those prescribed by GAAP and to help reduce the risk that such measures are presented in a way that could be misleading.

The Statement is intended for both an issuer that prepares its financial statements in accordance with IFRS and for an issuer that uses a financial reporting framework other than IFRS. IOSCO believes that sufficient information should accompany non-GAAP financial measures or be provided by reference to where the information is available, as this will help provide investors and other users with an understanding of the messages that the measures are intended to convey.

The final Statement follows IOSCO’s Proposed Statement, published for consultation in September 2014 and takes into account responses received to that consultation. While the substance of the final version is broadly the same as the Proposed Statement, changes made to the Proposed Statement include:

  1. re-organising the introductory text to clarify the scope of the Statement and to emphasise that it applies to non-GAAP financial measures that issuers disclose outside their financial statements. To assist in the distinction between non-GAAP and GAAP measures, an additional discussion has been included on what constitutes a GAAP measure. For the purposes of the statement, IOSCO considers that a GAAP measure is a measure that is specified, defined or determined pursuant to the issuer's financial reporting framework;
  2. narrowing the scope of the Statement so that it does not apply to any non-GAAP financial measure specified by law or required to be disclosed by a regulatory body;
  3. clarifying that the statement is intended to operate as a frame of reference for the disclosure of non-GAAP financial measures based on the collective experience of IOSCO members and that it is does not serve as a substitute for domestic requirements;
  4. amending the wording concerning the prominence of presentation of GAAP measures versus non-GAAP financial measures, to provide that non-GAAP financial measures should not be presented with more prominence than the most directly comparable measure calculated in accordance with GAAP; and
  5. adding an additional requirement that the information issuers provide regarding non-GAAP financial measures should be readily and easily accessible to investors and other users of financial information. IOSCO considers that information is readily and easily accessible if it accompanies the non-GAAP financial measure or a reference is provided to where the information is available.

IOSCO has identified the following elements as a frame of reference for the disclosure of non-GAAP financial measures, which it believes contributes to the reliability and comparability over time of such measures and reduces the potential for misleading disclosure;

  1. defining the non-GAAP financial measure;
  2. using the non-GAAP financial measures for an unbiased purpose;
  3. prominence of presentation of GAAP measures versus non-GAAP financial measures;
  4. reconciliation to comparable GAAP measures;
  5. presentation of non-GAAP financial measures consistently over time;
  6. recurring items; and
  7. access to associated information.

This frame of reference does not affect the ability that a jurisdiction has to develop and implement its own requirements for the presentation of non-GAAP financial measures in meeting its disclosure objectives. Thus, IOSCO reminds issuers of their obligation to comply with any domestic regulatory requirements and laws to which they are subject. Presentation of non-GAAP financial measures in accordance with the Statement is not a substitute for that compliance.