FMA signals its intention to provide guidance on the use of alternative performance measures

10 November 2011

The Financial Markets Authority will issue draft guidance for public consultation in 2012 on the use of alternative performance measures in public communications.


It is becoming increasingly common for New Zealand issuers to include financial information in public documents including annual reports, market announcements and transaction documents that do not conform to accounting standards. In particular, it has become increasingly common for entities to present alternative performance measures such as "underlying profit" or "normalised profit".

The Financial Markets Authority (FMA) intends to release for consultation a draft regulatory guide on disclosing alternative performance measures and other information prepared other than in accordance with accounting standards (non-conforming financial information, or NCFI). We have commenced initial discussions with market participants with a view to issuing a draft guide for public consultation in 2012.

FMA supports the continued application of International Financial Reporting Standards for issuers in New Zealand and views its broad and consistent application as helping to promote confidence in capital markets. FMA considers that, while NCFI can provide useful information to investors, it also has the potential to be misleading if, for example, it is used to mask bad news or to smooth results. NCFI can also lead to inaccurate comparisons of performance in different entities.

As a result, FMA intends to provide guidance on the use of NCFI in public communications. Key proposals expected to be contained in the draft regulatory guidance include:

  • NCFI should not be misleading.
  • NCFI should not be given undue prominence, emphasis or authority when compared with financial information prepared in accordance with accounting standards.
  • Restrictions on the use of NCFI on the face of the financial statements.
  • A reconciliation between NCFI and statutory information must be presented along with an explanation for each material adjustment. In addition an explanation on why such NCFI is presented should also be included along with details of its calculation.
  • A consistent approach from period to period should be adopted in calculating NCFI and, where there are changes, an explanation and reconciliation should be provided.
  • Adjustments made to information prepared in accordance with accounting standards should be unbiased, and should not merely remove "bad news".
  • Entities should disclose if the NCFI has been audited or reviewed.
  • NCFI should be clearly identified as non-conforming.

The FMA maintains relationships with other regulators in New Zealand and internationally. In particular, FMA contributes to the development of the trans-Tasman Single Economic Market agenda, ratified by both the Australian and New Zealand governments. To this end, we maintain a strong relationship with the Australian Securities and Investments Commission (ASIC).

ASIC is in the process of finalising guidance in relation to NCFI and, given its broader agenda, FMA will closely consider this guidance in developing appropriate and relevant guidance for the New Zealand Market.

Nick Stride on 09 985 4868 or 021 739 052