In addition to changing the way income and expenses are classified in the statement of profit or loss, IFRS 18 Presentation and Disclosure in Financial Statements, the new financial statements presentation standard that replaces IAS 1 Presentation of Financial Statements, also requires extensive disclosure about management-defined performance measures (MPMs).

What is a management-defined performance measure (MPM)?

A management-defined performance measure (MPM) is a subtotal of income and expenses that:

• An entity uses in public communications outside financial statements
• An entity uses to communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole, and
• Is not listed in paragraph 118 of IFRS 18 or specifically required to be presented or disclosed by Australian Accounting Standards.

You can find an in-depth discussion on this in our previous article.

Why disclose information about MPMs?

IFRS 18 identifies two disclosure objectives for MPM disclosures, i.e. to provide information to help financial statement users understand:

• The aspect of financial performance that, in management’s view, is communicated by an MPM, and
• How the MPM compares with the measures defined by IFRS® Accounting Standards.

What to disclose?

Key points to note when disclosing information about MPMs:

• Disclosure is required for all measures that meet the definition of a MPM.
• Disclosures for all MPMs must be shown in a single note in the financial statements.
• The MPM note must include a statement that the MPMs provide management’s view of an aspect of the financial performance of the entity as a whole, and are not necessarily comparable with measures sharing similar labels or descriptions provided by other entities.
• MPMs must be labelled and described clearly so as not to mislead users of financial statements.

The following table summarises the required disclosures.

Description of the aspect of financial performance that, in management’s view, is communicated by the MPM Why, in management’s view, the MPM provides useful information about the entity’s financial performance	←	What is the MPM?
How is the MPM calculated?	←	Method of calculation
A reconciliation between the MPM and: The most directly comparable subtotal listed in IFRS 18, paragraph 118, or Total or subtotal specifically required by IFRS Accounting Standards	←	Comparison with measures defined by IFRS Accounting Standards
For each reconciling item: The income tax effect The effect on non-controlling interests (NCI)	←	Income tax and non-controlling interests (NCI) effects
A description of how IFRS 18, paragraph B141* is applied to determine the income tax effect	←	How the income tax effect is determined

*IFRS 18.B141 permits an entity to determine the income tax effect using the statutory rate applicable to the transaction, or based on a reasonable pro rata allocation of the current and deferred tax, or another method that achieves a more appropriate allocation.

Source: IFRS Accounting Standards In Practice

Next month, we will explore further the reconciliation disclosures between the MPM and subtotals, as well as the income tax and NCI effects.

Single note

It is important to note that IFRS 18 requires MPM disclosure all in one note. The entity cannot disclose MPM information by cross-referencing to other notes in the financial statements, nor can information about different MPMs be disclosed in separate notes. You can’t disclose information about one MPM in say Note 5 and another in Note 16. They must all be disclosed in one note. This is to prevent the fragmentation of information disclosed and to improve transparency.

IFRS 18 does not prohibit an entity from disclosing other information in the note that includes the MPM disclosures. But, in this case, the entity is required to label the information so that it clearly distinguishes the disclosures related to MPMs.

Labelling of MPMs

Each MPM must be labelled and described clearly so as not to mislead users. In this regard, users must be able to understand which income and expense items have been included or excluded from the MPM subtotal.

The label should properly represent the characteristics of the MPM subtotal (for example, the label ‘operating profit before non-recurring expenses’ should only be used for a subtotal that excludes from operating profit all expenses identified by the entity as non-recurring).

When users may not understand the description, the entity should explain the meaning of the terms used to describe the MPM (for example, how the entity defines ‘non-recurring expenses’).

What if there is a difference in the way MPMs are calculated compared to accounting policies?

If the method of calculating the MPM differs from the accounting policies applied in the statement of financial performance, the following specific disclosures are required:

Scenario	Disclosure requirement
The method of calculation of the MPM differs from the accounting policies applied for the items in the statement of financial performance, but the method of calculation is permitted by IFRS Accounting Standards	The fact that the method of calculation of the MPM differs from the accounting policies applied in the statement of financial performance The calculation used for the MPM
Method of calculation of the MPM differs from the accounting policies required or permitted by IFRS Accounting Standards	The fact that the method of calculation is not permitted by IFRS Accounting Standards The calculation used for the MPM If necessary, an explanation of the meaning of the terms used, as discussed above

What if there are changes to MPMs?

An entity may change the method of calculating an MPM, add a new MPM, cease using a previously disclosed MPM or change the approach used for determining the income tax effects of the reconciling items. In such cases, the entity must disclose:

• An explanation that enables users to understand the change, addition or cessation and its effects
• The reasons for the change, addition or cessation, and
• Restated comparative information to reflect the change, addition or cessation unless it is impracticable to do so. If impracticable, the entity must disclose that fact.

The following are not considered changes in accounting policies:

• Selecting which MPMs to use
• The method for calculating an MPM
• The method of determining the income tax effect on the reconciling items.

Therefore, the IAS 8 disclosure requirements for changes in accounting policies do not apply. However, the IAS 8 requirements do apply when assessing whether restating the comparative information is impracticable.

More information

Our masterclass series on AASB 18 provides a practical, implementation‑focused approach to help you on your AASB 18 journey. You can also find more articles about IFRS 18 challenges on our IFRS 18 topic page, which includes resources such as our publication and webinars.

Need help

Our recent articles on IFRS 18 demonstrate the complexity of applying IFRS 18 in practice. Reach out to our team of experts for assistance with understanding the latest requirements in IFRS 18.