Uptick in ASX200 company reports using non-statutory performance measures

Uptick in company reports using non-statutory measures

There has been a rise in the use of non-statutory performance measures and reconciling items in company accounts since the COVID-19 era began, a new KPMG report shows.


The study of over 100 ASX200 company reports from 2019 and 2020 shows a large majority use at least one non-statutory measure of financial performance in their directors’ reports. The use of non-statutory measures is supported by Australian and global regulators, outside the core financial statements, if they are then reconciled to statutory measures and given no more prominence, but an important new international standard will seek to mandate disclosure of non-statutory performance measures in the notes to accounts.

The key findings of the report include:

  • 97 percent of companies reported at least one non-statutory measure in the Operating and Financial Review (the OFR is part of the directors’ report) – Underlying profit was the most common non-statutory measure in the OFR
  • The proportion of companies recording impairments of non-financial assets as reconciling items rose from 29 percent in 2019 to 51 percent in FY20, while restructuring and/or redundancy costs rose from 21 percent to 31 percent.
  • 21 percent increase in use of non-statutory segment (ie business unit) measures for FY20 over FY19 due to COVID-19 environment.
  • 88 percent of entities used non-statutory measures to determine performance incentives awarded to key management personnel

Zuzana Paulech, KPMG Audit Partner, said: “The use of non-statutory measures is valued by investors as a means for management to explain company performance, but there is also an acknowledged inconsistency in their use along with the quality of information provided supporting them. The international accounting standard-setter, the IASB Board, believes that by including these non-statutory measures in the financial statements, it will ensure global comparability and transparency and enhance the discipline with which they are prepared, making them subject to external audit.”

“But in Australia, we have had ASIC regulatory guidance and active surveillance on the presentation of non-statutory measures in annual reports and other corporate documents for a decade. The focus of this guidance is to minimize the possibility of misleading users and it has meant that non-statutory measures communicated by Australian companies are, in the majority, presented in a more transparent and disciplined way – albeit outside the financial statements, which means they are not routinely subject to separate audit or review.”

“Our analysis reveals a notable increase in the volume of adjustments to non-statutory measures in directors’ reports during FY20. This shows the impact of the COVID-19 crisis on companies’ performance and financial position, although only a small number identified specific reconciling items as arising solely from Covid. But the number of companies recording impairments of non-financial assets and restructuring and/or redundancy costs as reconciling items has risen significantly this year.”

“We were surprised that only 75 percent used non-statutory measures as their segment measure of performance in the notes to the accounts, compared with the 97 percent of directors who used them in the OFR to explain and contextualise their company’s performance and financial position – notably on underlying profit. We would generally expect similar measures to be used by management to assess performance of key business units, as is used to explain performance to investors in the directors’ report.”

The report confirmed that the large majority (88 percent) of companies used non-statutory performance measures when determining executive remuneration, mostly on short-term incentive plans. Most commonly used was a form of EBIT (Earnings Before Interest & Taxes).

The study notes that the International Accounting Standards Board, the global standard-setter, is planning to mandate the disclosure of specific non-statutory measures used be companies in public communications outside the financial statements, referred to as Management Performance Measures (MPMs) in the notes to the financial statements. The proposals look to increase the transparencey and discipline surrounding these measures by requiring information similar to existing Australian regulatory requirements be included in the notes to the financial statements.

Zuzana Paulech said: “The IASB Board’s exposure draft (ED) curiously limits MPMs to sub-totals of income and expenses. In Australia it is not uncommon for companies to use measures like free cash flows and return on equity to communicate their financial performance. We believe it would have been better for investors if the ED had allowed these as well.”

The KPMG report also says that the IASB Board’s ED will reshape the income statement structure, to reduce diversity and enhance transparency.

For further information

Ian Welch
KPMG Communications
T: 02 9335 7765 / 0400 818 891
E: iwelch@kpmg.com.au

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