FRC to take ESMA Guidelines into account when reviewing strategic reports

 The Financial Reporting Council has stated that its Corporate Reporting Review team will take ESMA's Guidelines on Alternative Performance Measures into account when deciding whether a strategic report is fair, balanced and comprehensive. The comment is contained in a set of responses to frequently asked questions recently published by the FRC on ESMA's Guidelines.

ESMA guidelines on Alternative Performance Measures

When EU-listed companies publish figures which are not based on IFRS or GAAP measures (e.g. EBITDA, free cash flow, sales per square metre, underlying profit or net debt), these are known as alternative performance measures. APMs include any numerical measure of historical, current or future financial performance, which relates to the financial position, comprehensive income or cash flows, other than a measure defined by the applicable financial reporting framework (such as IFRS).

ESMA guidelines apply to the use of alternative performance measures from 3 July 2016 in periodic reports and ad hoc disclosures as well as prospectuses. They do not, however, apply to information disclosed in accordance with specific regulatory requirements, such as pro forma information in prospectuses. The guidelines are intended to make it easier for investors to understand and compare such information and to reduce the possibility of it being misleading.

FRC FAQs

Other points covered by the FRC's FAQs include:

  • how APMs should be presented; and
  • the disclosures that should accompany APMs.

The FRC's Financial Reporting Lab will consider the benefits of instigating a project on APM disclosure in 2017.

The FRC's FAQs are not a substitute for reading ESMA's Guidelines. The Guidelines can be found here.

The FRC warns that its FAQs can be found here.