Management-Defined Performance Measures (MPMs): Integrating Non-GAAP into Financial Statements

Investors and analysts have long relied on management-defined performance measures (MPMs)—often called alternative performance measures or non-GAAP measures—to gain insight into a company’s underlying performance. These measures, however, were historically presented outside the audited financial statements, often leading to lack of transparency and consistency.

IFRS 18 – Presentation and Disclosure in Financial Statements addresses this issue by bringing MPMs into the financial statements, ensuring these widely used measures are disclosed, explained, and reconciled under an auditable framework.

What Are Management-Defined Performance Measures (MPMs)?

According to IFRS 18, an MPM is:

A subtotal of income and expenses used in public communications outside the financial statements that represents management’s view of an aspect of financial performance of the entity as a whole.

Key points about MPMs under IFRS 18:

• They must relate to income and expenses (not cash flows or financial ratios).

• They exclude subtotals required by IFRS, such as “Operating Profit.”

• Common examples: EBITDA, Adjusted Operating Profit, Core Earnings.

Why This Matters

MPMs provide insight into management’s perspective on performance, but their unregulated use previously created confusion and comparability issues. By requiring them within financial statements, IFRS 18:
✅ Enhances transparency—users see definitions, adjustments, and reconciliations.
✅ Improves auditability—MPMs will be subject to external assurance.
✅ Aligns performance narrative with regulatory reporting.

New Disclosure Requirements

IFRS 18 requires entities to present all MPM-related information in a single note to the financial statements, including:

• Description of each MPM, including why management uses it.

• Reconciliation between the MPM and the most similar IFRS-defined subtotal (e.g., Operating Profit).

• Explanation of adjustments and whether these are recurring or non-recurring.

Example:
If management reports “Adjusted EBITDA,” the note must reconcile it to Operating Profit or Profit Before Tax and explain any adjustments, such as restructuring costs or one-time charges.

Operational Impact

The inclusion of MPMs within financial statements creates several practical challenges:

• Data capture and validation for adjustments.

• Consistency across internal, investor, and public communications.

• Enhanced governance to avoid misleading performance indicators.

This means companies must strengthen their reporting frameworks, internal controls, and disclosure processes.

How Dawgen Global Can Help

At Dawgen Global, we help organizations navigate the integration of MPMs under IFRS 18 by offering:
✅ Policy Development: Define MPMs and ensure consistent application across reporting.
✅ Disclosure Framework Design: Prepare reconciliations and note structures that meet IFRS 18 requirements.
✅ Audit-Readiness: Align MPM reporting with assurance expectations to avoid compliance risks.
✅ Stakeholder Training: Equip finance, investor relations, and management teams to communicate performance effectively under the new standard.

Our goal is to turn compliance into strategic advantage, ensuring MPMs enhance—not confuse—your financial storytelling.

Conclusion

By requiring MPMs within financial statements, IFRS 18 bridges the gap between management’s view of performance and regulated financial reporting. Companies that prepare early will avoid compliance pitfalls and strengthen investor trust.

Start now. Dawgen Global is ready to guide you through this critical transition.

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