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Why care is needed when using APMs to show the effects of COVID-19


Alternative Performance Measures related to COVID-19 need to be used appropriately to avoid misleading users of financial information.

As the global economic disruption due to the COVID-19 pandemic continues, there is an increasing need for reliable information to help regain trust. Financial reporting can play an important role here.

To communicate how the pandemic has affected financial performance, management teams may use a variety of measures in addition to those required by international accounting standards. Alternative Performance Measures (APMs) are considered by many entities to be an important element of the communication of financial information.

However, entities that use a variety of APMs related to COVID-19 run the risk of confusing or even misleading users of financial information if the APMs are not accompanied by appropriate descriptions and disclosures.

APMs in financial communications can offer valuable insights to users of financial statements by highlighting the impact of the pandemic on financial performance, financial position or cash flows. But entities need to be aware that certain requirements apply if APMs are presented or disclosed in financial statements. Indeed, regulators in many jurisdictions have issued APM guidelines that entities need to consider when providing financial information.

Entities need to evaluate carefully how the impact of the pandemic should be presented and disclosed in their 2020 annual and interim financial statements and other reports.




 

Entities that use a variety of Alternative Performance Measures related to COVID-19 run the risk of confusing or even misleading users of financial information if the APMs are not accompanied by appropriate descriptions and disclosures.

 




There are various ways that this information can be communicated. Some entities are providing new APMs in addition to those provided in previous periods, or they may decide to adjust existing APMs in order to incorporate the impact of the pandemic. Others may elect to provide detailed disclosures with explanations of how the pandemic has impacted their performance, or is expected to impact it in future periods, without introducing new, or adjusting existing, APMs.

 

The EY publication, Applying IFRS: Impact of coronavirus on alternative performance measures and disclosures looks at the accounting and regulatory requirements for APMs and ways of reflecting the impact of COVID-19 on APMs and disclosures.

 

It discusses the requirements of accounting standards and regulators, including the need for APMs to be unbiased, not given undue prominence and accompanied by comparative information for prior years.


Summary

Companies may choose to use Alternative Performance Measures to communicate how COVID-19 has affected their financial performance. In doing so, they run the risk of confusing or misleading users of financial information. An EY publication examines the accounting and regulatory requirements for APMs and the ways to reflect the impact of COVID-19 on APMs and disclosures.


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