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AASB 18 Presentation and Disclosure in Financial Statements (AASB 18) is effective for annual reporting periods beginning on or after 15 December 2026.
Our previous article provided an overview of the requirements, and why the impact will be significant on many preparers.
In this article, we will focus specifically on one of the key new concepts in AASB 18, Management performance measures (“MPMs”) and how they should be reported in financial statements.
Management often use alternative performance measures to supplement the measures of profitability required under AASBs. An alternative performance measure is any measure of financial performance, position or cash flows that is not defined in Australian Accounting Standards. Management teams often use APMs to supplement mandatory disclosures, adjusting for items they believe distort the entity’s results, or do not reflect the core operations of the business. These measures can provide useful additional information to stakeholders. However, to serve this purpose, they must be explained clearly enough for users to understand their context or purpose.
To address concerns about the use of APMs, AASB 18 introduces new mandatory disclosures for management-defined performance measures, or MPMs, in financial statements.
What are management-defined performance measures (MPMs)?
MPMs are a sub-total of income and expenses that:
- Are used in any public communications outside financial statements.
- Communicate management’s view of an aspect of the financial performance of the entity as a whole.
- Is not specifically required to be presented or disclosed by AASB, or one of the specific, commonly understood subtotals excluded by the standard.
Common examples of MPMs include adjusted profit or loss, adjusted operating profit, underlying profit, EBITDA or adjusted EBITDA.
Performance measures that fall outside the definition of MPMs include:
- Non-financial performance measures such as carbon emissions, occupancy rate, employee satisfaction or customer satisfaction.
- Financial performance measures that are not income/expense subtotals such as free cash flow, return on equity or net debt.
- Financial performance measures that are AASB defined subtotals of income and expenditure like operating profit before depreciation, amortisation and impairment within the scope of AASB 136.
How do I know which MPMs I need to disclose?
An MPM is any sub-total of income and expenses that is used in any public communication issued by the entity. This definition is potentially quite wide, and it’s important to note that an MPM can be created by using such a performance measure at any time of the financial year, not just by communications concerning year-end results.
Examples of public communications which may give rise to MPMs include:
- Announcements to the stock exchange on which an entity is listed
- Investor presentations
- Press releases or website announcements
- The directors’ report in both the interim and annual financial statements
Entities should ensure that all communications of the types listed above are reviewed for MPMs prior to release, as it is possible that an entity may inadvertently create an MPM through the use of a particular metric or performance measure in a single announcement.
MPM disclosure requirements under AASB 18
There are several required disclosures to help users understand MPMs and how they compare with AASB-defined performance measure. For audited entities, disclosed MPMs will fall within the scope of the financial statement audit.
Each MPM must be clearly labelled and described, with the following disclosures included in a single note to the financial statements:
- A clear explanation of the aspect of financial performance that the MPM represents, including the reason that management considers the MPM enhances users’ understanding of financial performance.
- Details of how the MPM is calculated.
- A reconciliation showing how the MPM links to the closest relevant AASB subtotal with each related line item in the financial performance statement identified.
- The effects of income tax and non-controlling interests on each reconciling item.
- An explanation of how each reconciling item and its associated income tax effect was determined.
Any changes to MPMs, such as new or discontinued measures, or changes to the method of calculation, must be explained and justified within the relevant note to the financial statements, with comparative information restated.
Below is an example of how an MPM reconciliation might be presented:
| AASB | Adjusting items | MPM | |||
|---|---|---|---|---|---|
| Impairment loss | Restructuring expense | Gain on disposal of property, plant and equipment | |||
| Operating profit / Adjusted operating profit | 57,000 | 6,100 | 3,800 | (1,800) | 65,100 |
| Profit from continuing operations / Adjusted profit from continuing operations | 32,100 | 6,100 | 32,111 | (1,503) | 39,908 |
| Goodwill impairment loss | 4,500 | - | - | ||
| Profit attributable to non-controlling interests | 305 | 161 | - | ||
| R&D expense | 1,600 | - | - | ||
| Other operating income | - | - | -1,800 | ||
| Income tax expense | (589) | 297 | |||
| Impairment losses | Impairment losses incurred in 20X2 were not tax deductible in Country A and Country B and therefore did not yield any tax benefits. |
| Restructuring expenses | The restructuring expenses in 20X2 relate to XYZ Group’s restructuring programme. They include redundancy, retraining, and relocation costs linked to the closure of several factories in Country C. The tax effect was calculated based on the statutory tax rate in Country C (15.5%). |
| Gains on disposal of property, plant and equipment | The tax effect was calculated based on the statutory tax rate in Country D at the end of 20X2 (16.5%). |
What about additional earnings per share (EPS) measures?
Entities may, in addition to the required basic and diluted EPS figures, include supplemental EPS calculations in the notes, provided these are based on a component of the statement of comprehensive income.
There is a minor amendment to AASB 133, with additional EPS disclosures only permitted if the numerator represents a total or subtotal specified by AASB 18, or if it is an MPM.
What should your business do to prepare for AASB 18?
Early preparation is key to get your business ready for AASB 18. To ensure a smooth transition, consider the following steps:
- Review any communication of performance metrics outside the financial statements and assess whether they might be MPMs under AASB 18.
- Familiarise yourself with the disclosure requirements including reconciliations to the nearest AASB-required subtotal, along with tax and non-controlling interest effects.
- Set up a governance process to mitigate the risk of inadvertently creating an MPM when communicating performance.
- Review KPIs to confirm they remain relevant under the revised profit and loss structure, and ensure the business can comply with the MPM disclosure rules.
Helping you navigate AASB 18
Please contact RSM Australia’s National Technical team if you would like further support or guidance in your preparation for the implementation of AASB 18.
