FMA guidance on non-GAAP financial information welcome

Media release

May 23, 2012

FMA guidance on non-GAAP financial information welcome

Deloitte welcomes the FMA’s proposed Guidance Note on disclosing non-GAAP financial information aimed at ensuring that financial information presented to investors is not misleading or confusing.

Deloitte partner Denise Hodgkins says the FMA’s proposed guidance is a useful reminder of the key principles that underpin how and why such information should be presented.

Previous Deloitte surveys on the subject of “underlying profit” have found that there is a variety of measures used to describe the financial performance of companies in their annual reports.

“Last year our annual survey of 100 listed and other large companies with publicly available information showed 87 referred to alternative profit measures in addition to statutory profit in their 2010 annual reports,” Ms Hodgkins says

“In total, 214 varieties of alternative profit measures were used by the companies, including earnings before interest, tax, depreciation and amortisation (EBITDA), operating profit and underlying earnings.

”But a quarter of these were not clearly reconciled to statutory profit, which ran the risk of confusing investors.”

Ms Hodgkins notes that a key principle of any investor communications is explaining why the company directors consider the information is useful. Explaining why the measure is being presented, how management uses it in reaching decisions and how it relates to the statutory profit would go a long way to reducing any confusion for investors.

Ms Hodgkins also notes that while the FMA’s guidance is consistent with the Australian equivalent guidance issued by ASIC, it doesn’t go as far the ASIC guidance in restricting the use of these measures in the financial statements.

“It does however point out that the financial statements need to be prepared in accordance with the requirements of GAAP so preparers will need to ensure that any measures reported in the financial statements are appropriate in accordance with GAAP.”

Deloitte will be releasing its 2012 Deloitte Financial Reporting Survey results shortly, although it is likely to show similar results to 2011.

“We will observe with interest how companies respond to the FMA’s guidance in the future.”

To see the annual Deloitte Financial Reporting Survey series, go to www.deloitte.com/nz/financialreportingsurvey.
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