The release of the new standard IFRS 18 is a extremely significant event. It is the first new standard for 7 years and because it deals with the presentation of financial statements it affects pretty much anyone who uses or prepares accounts under the IFRS regime.
But alongside those reasons there is one completely new idea that makes it noteworthy too. That is the introduction of something called Management Performance Measures (MPMs).
Management Performance Measures (MPMs)
MPMs have been introduced in IFRS 18 in response to stakeholder feedback. They have a number of intended benefits:
- Enhanced Transparency: MPMs provide a clearer picture of how management evaluates and measures the performance of the company. This allows stakeholders to gain better insights into the company's performance from the management's perspective.
- Improved Comparability: By standardizing the reporting of performance measures, IFRS 18 aims to improve the comparability of financial information across different entities and industries. This helps investors and other stakeholders to make more informed decisions by comparing companies on a like-for-like basis.
- Relevance and Reliability: MPMs are designed to present relevant and reliable performance metrics that are directly linked to the strategic goals and operational performance of the entity. This alignment ensures that the reported measures are meaningful and useful for users of financial statements.
- Consistency and Clarity: Introducing MPMs under IFRS 18 provides a consistent framework for reporting performance measures, reducing the variability and confusion that may arise from using different non-GAAP measures. This consistency helps users to better understand and interpret the financial performance of an entity.
- Addressing Market Demand: There has been increasing demand from investors and other stakeholders for more detailed and relevant performance information. MPMs respond to this demand by providing additional disclosures that go beyond traditional financial statements.
- Regulatory and Standardization Goals: By incorporating MPMs into IFRS 18, the International Accounting Standards Board (IASB) aims to establish a standardized approach to reporting performance measures, thereby promoting best practices and enhancing the overall quality of financial reporting.
For me of all of these it is the first one that resonates the most. If management are incentivised in some way that is different to the way the information about performance is reported in the published accounts then as a stakeholder I would want to know that.
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