What counts as a management performance measure under IFRS 18?
Three tests, all of which have to hold. The measures that catch people are the ones used in a results presentation but never printed in the statements.
A management performance measure is a subtotal of income and expenses that is used in public communications outside the financial statements, communicates management's view of an aspect of the entity's financial performance, and is not one of the subtotals IFRS itself requires or lists (IFRS Foundation).
All three have to hold. Most teams know an MPM needs a reconciliation and cannot tell which of their own measures qualify, and the ones that catch people are not the obvious ones.
Adjusted EBITDA is the easy case
If you publish "adjusted operating profit" or "underlying profit before tax" in a results release, it is a subtotal of income and expenses, it is outside the statements, it communicates management's view, and IFRS does not require it. It is an MPM. There is nothing to work out.
The interesting cases are elsewhere.
The three that catch people
A measure used in a results presentation but never printed in the statements. A slide showing "operating profit before acquisition amortisation" is a public communication. That the figure appears nowhere in the accounts does not exclude it. This is the case IFRS 18 most changes, because previously such a measure sat entirely outside the reporting framework.
A measure used in the remuneration report. It is public, it is management's view of performance, and it is a subtotal. Remuneration disclosures are drafted by a different team on a different timetable, which is how a measure ends up inside the disclosure requirements without the reporting team noticing.
A segment measure promoted to the front half. A segment result under IFRS 8 is not automatically an MPM. Repeat it in the narrative as a measure of the group's performance and the position changes.
The three tests, and what each excludes
Working through a measure, the useful output is not a yes or no. It is which test it failed.
Is it a subtotal of income and expenses? A ratio is not. Return on capital employed, a margin percentage, earnings per share, free cash flow: none of them is a subtotal of income and expenses, so none is an MPM. Other disclosure requirements may still apply, but not these.
Is it used in public communications outside the financial statements? A measure reported only to the board or used only in internal planning is not an MPM. The boundary of "public" is the contested part, and there is active work at the interpretations committee on exactly where it falls, so a borderline case is worth documenting rather than deciding quietly.
Does it communicate management's view of financial performance? This test rescues fewer measures than people hope. If a figure is published as a headline number, it almost always communicates management's view. A measure disclosed because a lender requires it, with no commentary, is a better argument.
And the disqualifier: is it required or listed by IFRS? Operating profit and profit before financing and income tax are the standard's own subtotals. They are not MPMs however prominently they are used, and a reconciliation of operating profit to operating profit would be an odd disclosure.
What follows if a measure qualifies
- A single note covering all management performance measures, rather than the disclosures scattered through the accounts.
- A reconciliation to the most directly comparable subtotal that IFRS 18 requires or lists.
- The tax effect and the effect on non-controlling interests, for each reconciling item. This is the part with the most work in it and the part most often underestimated.
- A statement of why the measure communicates management's view, and how it is calculated.
- A restated comparative, and an explanation if the calculation has changed.
The tax and non-controlling interest effects deserve emphasis. Producing them for every reconciling item, for every measure, for two periods, is a modelling exercise rather than a disclosure exercise, and it is the reason to identify the population early.
Work the list, not the definition
Take your results release, your investor presentation, your annual report narrative and your remuneration report. List every subtotal in them. Then apply the tests to each rather than reasoning from the definition, which is how measures get missed.
Our free MPM tool does exactly that: add your measures, answer the four questions per measure, and it tells you which qualify and, for the ones that do not, which test they failed.
One limit worth stating
Where a measure sits on the "public communications" boundary, this does not settle it. A closed analyst call, a lender pack, a trading update to a small group of holders: reasonable preparers reach different conclusions, and the interpretations committee is still working through the edges. Document the reasoning and take it to your auditor rather than concluding quietly, because an MPM identified late is a disclosure built in a hurry.
To have your own statement read and its subtotals identified, join the waitlist.