Let’s return to the upcoming IFRS 18, Presentation and Disclosure in Financial Statements…

As we covered here, a key aspect of the new standard is its treatment of management-defined performance measures (MPMs), subtotals of income and expense that aren’t specifically required to be presented or disclosed under IFRS, but that an entity uses in public communications outside financial statements, to communicate management’s view of an aspect of financial performance. This would broadly include adjusted profit measures that add back various items. Under IFRS 18, an entity discloses information about its MPMs in a single note to the financial statements, including a statement that the MPMs provide management’s view of an aspect of the financial performance of the entity as a whole and are not necessarily comparable with measures sharing similar labels or descriptions provided by other entities. For each MPM, the standard requires describing the aspect of financial performance that it communicates, including why management believes the MPM provides useful information about the entity’s financial performance; the calculation and a reconciliation to the most directly comparable subtotal or total reported under IFRS; and how the entity determined the income tax effect, as well as explanations of any changes in the calculations.

We noted previously that for companies in Canada and various other jurisdictions, the information required for MPMs is very similar to current regulatory requirements and expectations relating to “non-GAAP measures,” which have tightened significantly over the years. It was clear that Canadian regulators would need to respond to the standard in some way, and now they have, proposing amendments to National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure and related instruments. These are the main aspects of the proposals:

• Since NI 52-112 currently defines a non-GAAP financial measure as, among other things, a financial measure that is not disclosed in the financial statements of the entity, without the Proposed Amendments, many measures that have historically been considered non-GAAP financial measures (e.g., adjusted net income, adjusted EBITDA) would no longer meet the definition of a non-GAAP financial measure in NI 52-112 if those measures are disclosed in the financial statements as MPMs under IFRS 18. Therefore, without the Proposed Amendments, those measures would not be subject to the disclosure requirements in NI 52-112 when disclosed outside of the financial statements.
• The disclosure requirements for MPMs in IFRS 18 are not inconsistent with the disclosure requirements for non-GAAP financial measures in NI 52-112. To reduce duplicative disclosures, the Proposed Amendments allow incorporation of information by reference to the notes to the financial statements if such notes contain the information required by NI 52-112.
• In addition, to promote connectivity with IFRS 18, which requires an additional subtotal presented on the face of a primary financial statement, such as the statement of profit or loss, to be displayed no more prominently than the totals and subtotals required by IFRS Accounting Standards (e.g., operating profit), we are proposing a similar requirement when such an additional subtotal is disclosed outside the financial statements…

To meet the first bullet point then, this is the new proposed regulatory definition of non-GAAP financial measure:

• “non-GAAP financial measure” means a financial measure disclosed by an issuer, other than a total of segments measure or a capital management measure, that is either of the following:
• (a) a management-defined performance measure;
• (b) a financial measure that (i) depicts the historical or expected future financial performance, financial position or cash flow of an entity, (ii) with respect to its composition, excludes an amount that is included in, or includes an amount that is excluded from, the composition of the most directly comparable financial measure disclosed in the primary financial statements of the entity, (iii) is not disclosed in the financial statements of the entity, and (iv) is not a ratio, fraction, percentage or similar representation.

It’s a bit unwieldy no doubt, to have a definition that in bullet (a) depends on something being disclosed in an entity’s financial statements, and in bullet (b) depends on it not being. But that just reflects the fragmented way in which this whole thing came together. The Ontario Securities Commission appended a cost benefit analysis, noting:

• Since the Proposed Amendments aim to ensure that financial measures, that have historically been subject to the requirements of NI 52-112 remain subject to its requirements as they are today, material additional ongoing costs are not expected. In other words, the Proposed Amendments re-establish the baseline without imposing material new requirements on issuers. However, issuers may incur implementation costs primarily relating to understanding the effect of the Proposed Amendments. For example, we anticipate that all issuers will review the final amendments and conduct a gap analysis against existing policies and procedures. Such initial implementation costs are not expected to be material.

That last sentence is no doubt accurate in the context of the financial statements, but considering the area has just about been done to death already, the costs will probably still often be higher than issuers might think they should be. Anyway, the proposals are open for comment until February 11, 2026.

The opinions expressed are solely those of the author.