As we’ve covered in the past, one of the major aspects of the new standard IFRS 18 Presentation and Disclosure in Financial Statements, applicable for periods beginning on or after January 1, 2027, is its approach to disclosing “management-defined performance measures.”

IFRS 18 describes such a measure as a subtotal of income and expenses (excluding certain specified items) that an entity uses in public communications outside financial statements, to communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole (the IASB considered widening the definition, for example to include measures of cash flow, but decided against it, citing the additional work that would be required to develop appropriate definitions, application guidance and so on). Responding to long-standing concerns about quality and reliability, the standard requires an entity to disclose and describe all such measures in a note to the statements. One of the main discussion points in implementing the standard will often be to determine whether a particular amount included (for instance) in press releases falls within the scope of the definition: this may often include measures relating to reportable segments. As these amounts arise from disaggregated information, they may seem by definition not to relate to the entity as a whole, and therefore to fall outside the definition. The Board said, in its basis for conclusions:

• The IASB observed that some subtotals of income and expenses provided in an entity’s public communications outside the financial statements might relate to a reportable segment disclosed in accordance with IFRS 8. A reportable segment measure might not provide information about the performance of an entity as a whole.
• However, in some circumstances, a reportable segment measure might provide information about the performance of an entity as a whole— for example, if it presents a subtotal in the statement of profit or loss that relates to only one of its reportable segments. The IASB did not exclude such segment measures from the definition of management-defined performance measures. The IASB instead decided to clarify that management-defined performance measures reflect management’s view of an aspect of the performance of an entity as a whole.

For example: “if a reportable segment contains a single main business activity of the entity and a subtotal of income and expenses relating to that segment is presented in the statement of profit or loss, that would indicate that the subtotal provides information about an aspect of the financial performance of the entity as a whole.”

An underlying staff paper sets out one reason why a segment-related limitation on disclosure is necessary:

• …required and specified subtotals to which entities must reconcile management performance measures are calculated for the reporting entity as a whole. There would be unintended consequences if individual segment measures were considered management performance measures. For example, the reconciliation of individual segment measures to measures at the level of the entity as a whole would be subject to tax and NCI requirements for reconciling line items. Users may not find this information useful, and it may be burdensome for preparers to apply.

The staff paper also muses: “There may be circumstances where entities have more than one reportable segment and a single segment measure of performance which communicates that aspect of performance for the entity as a whole. For example, a manufacturer that provides financing to customers may have a financing segment and report a measure of net interest income for that segment. As other segments have no amounts relating to net interest income, this measure would also relate to the entity as a whole.” (This particular example wouldn’t yield additional MPM disclosure though, net interest income being a specified disclosure elsewhere within IFRS 18).

Overall, whether something provides information about the entity “as a whole” isn’t entirely satisfying as a point of distinction: analogizing to the human body, information about something that covers the whole (the exterior skin for instance) may not be more crucial to overall functioning than various components (heart, lungs etc.). For a more tangible example, consider an entity for which AI isn’t a main business activity, but which provides information in its news releases about AI-related revenues and costs incurred in various segments: such information wouldn’t likely meet the definition of a management-defined performance measure. Even so, in the current climate, investors might find such a measure to be of greater interest than various more established entity-wide ones, and might (if they were asked) appreciate having it subjected to the same rigour (and audit procedures) as other MPMs. In such cases, the incremental progress constituted by IFRS 18 may no doubt be better than none. Still, that’s one example of how a reader should view the new disclosures about MPMs as a supplement and counterpoint to the broader body of information an entity provides publicly about its performance, not as a substitute for it…

The opinions expressed are solely those of the author.