Adjusted EBITDA, recurring operating profit and underlying performance: groups use many indicators to explain performance. IFRS 18 introduces a new concept, Management-defined Performance Measures, or MPMs, to provide a framework for certain subtotals.
What is an MPM?
An MPM is a subtotal of income and expenses used in public communications outside the financial statements that, in management’s view, communicates an aspect of the entity’s financial performance. Not every KPI is therefore an MPM: non-financial indicators, ratios, liquidity measures and subtotals defined directly by IFRS are excluded.
Information grouped in a dedicated note
IFRS 18 requires MPM information to be presented in a single note to the financial statements. For each measure, the company must explain:
- what the measure represents and why it is useful;
- how it is calculated;
- its reconciliation with the most comparable IFRS subtotal;
- the tax effect of reconciling items;
- the impact on non-controlling interests where necessary;
- changes in definition or methodology.
The scope must be inventoried
Identification cannot be limited to the annual report. Earnings releases, investor presentations, results materials, management communications and other public documents must be reviewed. A measure regularly used by management may be in scope even if it is not currently described as an alternative performance measure.
Consequences for EPM tools
MPMs should no longer be calculated in an isolated file at the end of the process. The consolidation or reporting tool should manage:
- a centralized, version-controlled definition;
- adjustments with sufficient granularity;
- automatic reconciliation with IFRS aggregates;
- tax effects and non-controlling interests;
- validation and the audit trail;
- consistency across communication materials.
Establish governance
Each MPM should have an owner, an approved formula and an approval workflow. Governance should involve consolidation, management control, tax, investor relations and legal teams. Every change must be justified and documented.
Recommended steps
- inventory published measures;
- determine which meet the MPM definition;
- identify the comparable IFRS subtotal;
- formalize the bridge and tax effects;
- integrate the calculation into the EPM system;
- test the dedicated note using comparative data.
MPMs are a transparency challenge but also an opportunity: they require groups to connect the indicators used to manage the business with audited statutory data.