What Are Management-Defined Performance Measures (MPMs)?
MPMs are now disclosed in the financial statements in a transparent way – explained and reconciled – and are subject to audit. MPMs capture some but not all ‘non-GAAP’ measures. Acknowledging the usefulness of ‘non-GAAP’ performance measures in communicating financial performance to users, IFRS 18 defines ‘management-defined performance measures’ (MPMs) and includes specific requirements for their disclosure in the notes to the financial statements to enhance transparency. See also a general introduction to IFRS 18 Presentation and Disclosure.
According to IFRS 18, management-defined performance measures are financial metrics:
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Derived from IFRS figures (e.g., profit before tax),
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Defined by management and used to evaluate or communicate performance,
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Not prescribed by IFRS, and
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Presented in public communications outside the financial statements.
Common examples include:
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Adjusted profit (excluding restructuring or acquisition-related expenses),
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Core operating income,
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Underlying earnings per share.
What sets MPMs apart is their managerial origin and storytelling role—they reflect how management internally views and explains performance to external stakeholders.
Why This Matters
A 2019 study by ESMA (European Securities and Markets Authority) found that over 85% of EU-listed companies used non-GAAP measures in their financial communication. However, only 40% adequately reconciled these metrics to IFRS results or defined them clearly. This lack of standardization left room for biased interpretations, selective disclosure, and confusion among analysts.
By requiring MPMs to be presented in a structured note, IFRS 18 directly responds to investor calls for:
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Greater transparency,
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Comparability across entities, and
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Credibility of performance measures that extend beyond statutory IFRS figures.
IFRS 18 Requirements for MPMs
Under IFRS 18, entities presenting MPMs must include the following in a dedicated note:
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A clear definition of each MPM,
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An explanation of why it provides useful information,
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A reconciliation to the most directly comparable subtotal or total in the income statement,
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Consistent application over time, with disclosure of any changes,
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A statement that these measures are audited as part of the financial statements.
This is a significant departure from today’s practice, where companies can choose which non-GAAP metrics to highlight—often without consistency or justification.
Example
A company reports “adjusted operating profit” that excludes impairment losses and restructuring costs. Under IFRS 18, the company must:
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Reconcile this figure to the IFRS operating profit,
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Disclose the adjustments made,
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Explain why this adjusted view is meaningful,
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Indicate whether the definition has changed since the previous year.
The Governance Dimension
From a governance perspective, IFRS 18 strengthens the role of audit committees and supervisory boards. These bodies must now oversee not just the reliability of statutory numbers, but also:
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The appropriateness and transparency of alternative performance metrics,
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The consistency of internal KPIs and external messaging, and
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The narrative coherence between strategy, risk, performance, and reporting.
MPMs become a governance lever: a way to challenge or validate how management frames success.
What is public communications outside the financial statements?
A subtotal of income and expenses is an MPM only if it is used in public communications outside the financial statements. Under IFRS 18, such public communications include:
• management commentary;
• press releases; and
• investor presentations.
In contrast, oral communications (and their transcripts) and social media posts are not public communications under IFRS 18.
Timing
MPMs relate to the same reporting period as the financial statements. This means that a subtotal related to an entity’s performance in the interim financial statements but not to the annual financial statements can only be an MPM in the interim financial statements. Similarly, a subtotal related to performance in the entity’s annual financial statements but not to performance in the interim financial statements can only be an MPM in the annual financial statements.
When identifying MPMs for the current reporting period, an entity considers public communications related to the current reporting period. Depending on an entity’s financial reporting process, it can routinely issue some communications after issuing its financial statements. In this case, an entity also considers public communications related to the previous reporting period to identify MPMs for the current reporting period, unless there is evidence indicating that a measure will no longer be used in public communications related to the current reporting period.
Challenges and Opportunities Ahead
Companies face several implications:
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Legacy KPIs and dashboards must be mapped to IFRS 18 definitions,
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Systems and controls must capture data for MPMs and enable audit trails,
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Communications (including earnings releases and investor presentations) must align with the audited financials,
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Audit teams must extend their scope to include MPM reconciliations and consistency checks.
At the same time, the inclusion of MPMs in the audited financial statements brings benefits:
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Enhanced credibility with investors,
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Greater discipline in performance reporting,
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And improved transparency around the company’s operational story.
Final Reflection: From Storytelling to Accountability
IFRS 18 does not prohibit companies from telling their performance story—it requires them to tell it responsibly. The introduction of MPMs as a defined and audited category marks a shift: from “optional narrative” to “accountable signal.”
In doing so, IFRS 18 empowers stakeholders to better understand how management views the business—while anchoring that view in objective, auditable data.
Sources
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KPMG (2024). Management-Defined Performance Measures
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ESMA (2019). Report on the use of Alternative Performance Measures by issuers
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IFRS Foundation (2024). IFRS 18 Standard (official text)