ACCA Strategic Professional · Strategic Business Reporting (International) · Analysis and interpretation of financial and non-financial information and measurement of performance

Orlin plc presents an alternative performance measure, 'underlying profit', in its annual report. It excludes restructuring costs that have recurred in each of the last four years, but includes no equivalent exclusion for gains. Which assessment is most consistent with IFRS Accounting Standards and ethical reporting?

The measure is potentially misleading because it removes costs that recur every year while not treating gains symmetrically. IFRS 18 permits management-defined performance measures only with a note reconciling them to IFRS subtotals and explaining them, so bias undermines faithful representation.

1. AThe measure may be misleading, because excluding recurring costs is inconsistent with describing them as non-underlying, and IFRS 18 requires management-defined performance measures to be disclosed with a reconciliation and explanationCorrect
2. BIt is acceptable, because IFRS Accounting Standards allow any adjustments to profit if the term is defined
3. CIt is acceptable provided it is shown more prominently than IFRS profit
4. DIt is prohibited, because IFRS Accounting Standards ban all non-GAAP measures