While such information may be necessary or useful to meet the demands of users such as analysts and investors, there is potential for the disclosures to be misleading.
In December 2011 ASIC released Regulatory Guide 230 Disclosing non-IFRS financial information (RG 230). The purpose of RG 230 is to:
- promote more meaningful communication of financial information to investors and other uses of financial reports
- assist directors in ensuring that the financial information disclosed is not misleading, and
- provide greater certainty in the market as to ASIC’s views on disclosure of non-IFRS financial information.
ASIC will be focusing on the disclosure of non-IFRS financial information during the December 2011 reporting season.
Financial reports
RG 230 explains that non-IFRS financial information must not be included in financial statements, and such information may only be included in the notes to the financial statements in the rare circumstances where such disclosure is necessary to give a true and fair view of the financial position and performance of the entity.
Non-IFRS profit measures may not be included as line items or subtotals in the statement of comprehensive income, in additional columns or in a table below the statement. It would generally be acceptable to disclose earnings before interest and tax (EBIT), which may be useful in assessing interest cover.
Other documents
Users of financial reports may ask for financial information in addition to the financial report to better understand aspects of the performance of an entity.
Entities may provide non-IFRS financial information in documents other than financial reports, including the directors’ report, management commentary and market announcements.
The information must not be misleading. Guidance to assist directors in reducing the risk of the information being misleading includes:
- giving equal or greater prominence to IFRS financial information
- clearly labelling and explaining the non-IFRS information and reconciling it to the IFRS financial information
- calculating the information consistently from period to period
- the information should be unbiased and not used to remove ‘bad news’, and
- items that have occurred in the past or are likely to occur in a future period should not be described as ‘one-off’ or ‘non-recurring’.
To assist in determining whether greater prominence is being given to non-IFRS financial information, the guide includes some examples of where this might be the case:
- where commentary on entity performance relates only to non-IFRS profit information, with little or no analysis of the reconciling items from the IFRS profit figure
- where the IFRS profit figure is shown only in a footnote to the non-IFRS profit information
- changing the emphasis given to the IFRS and non-IFRS profit information from period to period (eg, emphasising whichever figure gives the most favourable outcome for a period)
- not presenting the IFRS profit figure and associated reconciliation at least once in every document containing non-IFRS profit information
- where the non-IFRS profit information is more prominent than the IFRS profit information on the first page of the document
- where an explanation of the non-IFRS profit figure and a reconciliation to the IFRS profit figure do not appear where the non-IFRS profit figure is first used.
RG 230 has further guidance.
Transaction documents
It is often necessary or appropriate to include non-IFRS financial information as pro forma financial information in transaction documents to fulfill statutory disclosure obligations. RG 230 provides additional guidance on presenting pro forma financial information to ensure that it is not misleading. For example, the amount and nature of all material adjustments that have been made to the IFRS financial information to derive the pro forma financial information should be disclosed by way of a reconciliation, together with the reasons for those adjustments.
