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Alternative performance measure – ESMA guidelines

12 September 2016

Earlier this year, the European Securities and Markets Authority (ESMA) published Guidelines on Alternative Performance Measures (the Guidelines), which are intended to improve the comparability, reliability and comprehensibility of Alternative Performance Measures (APMs, sometimes known as non-GAAP measures) included in annual reports and other financial information. The Guidelines are addressed to:

  • Companies with securities traded on a regulated market and which are required to publish regulated information under the Transparency Directive, and
  • Persons responsible for prospectuses under the Prospectus Directive.

They apply to APMs in regulated information including:

  • Management reports disclosed to the market in accordance with the Transparency Directive (eg the strategic report in an annual report and the interim management report included in a half-yearly report)
  • Disclosures issued under the requirements of Article 17 of the Market Abuse Regulation (eg ad-hoc disclosures including financial earnings).

The Guidelines do not apply directly to APMs disclosed in financial statements, although they are indirectly relevant. They also do not apply to APMs required by and defined in legislation (eg they do not apply to measures included in prospectuses such as pro forma financial information, related party transactions, profit forecasts and estimates, working capital statements and capitalisation and indebtedness statements, as required by the prospectus regime) or to prudential measures, including those defined in the Capital Requirements Directive and Regulations (CRD IV/CRR).

The Guidelines apply to regulated information and prospectuses published on or after 3 July 2016 and will be implemented by the Financial Conduct Authority as part of their supervisory activities in the UK.

The Financial Reporting Council (FRC) has also released an FAQ document on the ESMA Guidelines. In it the FRC noted that its Corporate Reporting Review team will take material inconsistencies with the Guidelines into account when deciding whether the strategic report is fair, balanced and comprehensive and, as a result, whether enforcement action is required. For example, a failure to properly explain how an APM is calculated or to highlight any changes in its calculation year on year may prompt further enquiries.

Read more on the Guidelines.

For further information on this issue please contact Scott Knight.

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