Accounting alert 2011/06 - Disclosing non-IFRS financial information
Regulatory Guide 230 Disclosing non-IFRS financial information
The Australian Securities & Investment Commission (ASIC) has issued Regulatory Guide 230 (RG 230) which provides guidance, including examples, on the use of non-IFRS financial information in financial reports, transaction documents (such as PDSs, prospectuses, bidder statements, scheme of arrangement documents and notice of meetings) and other documents (such as the directors’ report, market announcements, presentations to investors, and briefings to analysts).
Scope of non-IFRS financial information
Non-IFRS financial information is defined in RG 230 as any ''financial information that is presented other than in accordance with all relevant accounting standards'' (i.e. Australian accounting standards).
The scope of RG 230 excludes non-IFRS information such as statutory information required by regulators (e.g. capital adequacy information required by the Australian Prudential Regulatory Authority), disclosures required by accounting standards (e.g. segment disclosures under AASB 8 Operating Segments), disclosures relating to compliance with the terms of agreements and legislative requirements, or disclosures regarding calculation of director and executive remuneration, among others.
Financial information prepared other than in accordance with Australian accounting standards must not be included in financial statements (limited exceptions are allowed under the accounting standards where compliance with standards does not give a true and fair view).
The guidance in RG 230 clarifies that (refer Table 1 in RG 230 for more detailed examples):
- the inclusion of profit figures prepared other than in accordance with Australian accounting standards as line items or subtotals in the income statement/statement of comprehensive income is prohibited with the exception of describing and disclosing earnings before interest and tax (EBIT)
- if revenue items are grouped with related expense items it is not possible to comply with the accounting standard requirements of showing totals for revenue and income tax expense
- the presentation of non-IFRS financial information as additional columns in the financial statements or in separate sections below the financial statements is also prohibited
- describing restructuring, impairment or other costs as ‘one-off’ or ‘non recurring’ is prohibited as such costs are likely to occur in a future period (albeit occasionally).
Non-IFRS financial information may be included in documents accompanying the financial statements, as discussed below.
Documents other than financial reports and transaction documents
The use of non-IFRS financial information in documents other than financial reports and transaction documents (i.e. the directors’ report, market announcements, presentations to investors, and briefings to analysts) is governed by general statutory obligations which stipulate that such information should not be misleading.
The guidance in RG 230 states that (refer to Table 2 in RG 230 for more detailed guidance):
- non-IFRS financial information should not be given greater prominence than IFRS financial information, in particular IFRS profit
- non-IFRS financial information should be clearly labelled as such and the reasons why the information is useful disclosed
- reconciliations to the related IFRS financial information should be provided
- adjustments to IFRS financial information should be consistent from period to period and be unbiased, for example, adjustments made in arriving at non-IFRS profit should not include realised gains/losses while excluding unrealised gains/losses
- it should be clear whether or not the non-IFRS financial information has been audited or reviewed.
While inclusion of non-IFRS financial information is permitted in transaction documents (i.e. prospectuses, PDS, bidder statements, scheme of arrangement documents and notice of meetings), such information should not be presented in a misleading manner.
Transaction documents are not required to comply with Australian accounting standards but ASIC’s view is that users of such documents expect financial information and pro forma financial information to be presented in accordance with Australian accounting standards. Therefore, where a particular accounting standard is not followed, the nature, reasons and financial effect of the departure should be prominently disclosed to ensure that the information is not misleading.
The guidelines included in RG 230 to ensure that pro forma financial information is not misleading include (refer to Table 3 in RG 230 for more detailed guidance):
- disclosing assumptions made and the basis of calculations, including for ratios
- disclosing the nature, reason for and amount of all material adjustments made to IFRS financial information to derive pro forma information
- considering providing complete pro forma statements of comprehensive income and financial position with explanation of the impacts of funding, tax and amortisation where complete statements are not provided
- providing financial information prepared in accordance with Australian accounting standards where pro forma figures have been prepared under the generally accepted accounting principles (GAAP) of another jurisdiction
- stating whether or not the pro forma information has been audited or reviewed.
A copy of the Regulatory Guide containing comprehensive guidance can be obtained from the ASIC website by clicking here.