IFRS 18 Management Performance Measures — Core Rule
Under IFRS 18, a Management Performance Measure (MPM) is any subtotal of income or expenses used in public communications outside financial statements that is not defined or specified by IFRS — and any such measure must be disclosed in the notes with a labelled reconciliation to the most directly comparable IFRS-defined line item.
How IFRS 18 Management Performance Measures Works
- Definition and scope (IFRS 18.B1–B4): An MPM exists when management uses a subtotal of income or expenses — such as "adjusted EBITDA," "underlying profit," or "adjusted operating profit" — in public communications (earnings releases, investor presentations, management commentary). The measure must relate to the entity's own financial performance; sector-specific KPIs (e.g. same-store sales) or non-financial measures are excluded.
- Mandatory note disclosure (IFRS 18.100–104): Entities must disclose each MPM in the notes to the financial statements, not merely in the front section of the annual report. The note must include: (i) a description of why the MPM provides useful information, (ii) how it is calculated, and (iii) a numerical reconciliation from the MPM to the most directly comparable total or subtotal required or specified by IFRS 18, with each reconciling item individually labelled and explained.
- Tax and NCI effect (IFRS 18.105): For each reconciling item between the MPM and its IFRS comparator, the entity must disclose the tax effect and the effect attributable to non-controlling interests, so users can assess after-tax impact clearly.
- Consistency and labelling (IFRS 18.106–107): MPMs must be labelled in a way that distinguishes them from IFRS-specified measures. Neutral presentation is required — an MPM cannot be displayed with more prominence, authority, or emphasis than comparable IFRS totals. If an MPM is discontinued or redefined, disclosure of that change and the reason is required.
- Interaction with IAS 1 subtotals (IFRS 18.45–50): IFRS 18 replaces IAS 1 and introduces structured categories in the income statement (operating, investing, financing). Subtotals presented on the face of the statement of profit or loss that are not defined by IFRS 18 are also subject to MPM-equivalent rules if communicated externally — preventing off-statement arbitrage.
- Comparative period (IFRS 18.108): Reconciliations must be provided for both the current and prior comparative period, maintaining consistency with general IFRS presentation requirements.
IFRS 18 Management Performance Measures — Practical Example
A listed manufacturer reports "Adjusted EBIT" of €85m in its earnings release, excluding €12m of restructuring charges and €3m of acquisition-related amortisation from its IFRS profit from operations of €70m.
Reconciliation note (€ millions)
| Line item | Amount (€m) |
|---|
| Profit from operations (IFRS 18 category subtotal) | 70 |
| Add: Restructuring charges excluded from Adjusted EBIT | 12 |
| Add: Acquisition-related amortisation excluded | 3 |
| Adjusted EBIT (MPM) | 85 |
The entity must also disclose the tax effect of the €15m of adjustments — say at a 25% effective rate, that is €3.75m — and any NCI share. A journal entry is not required for the MPM disclosure itself (it is a note, not a recognition event), but the underlying restructuring charge already recorded would appear as:
| Account | Dr (€m) | Cr (€m) |
|---|
| Restructuring provision expense (P&L) | 12 | |
| Restructuring provision (liability) | | 12 |
The MPM note then explains why this charge is excluded and reconciles back to the €70m IFRS subtotal.
IFRS 18 Management Performance Measures — Common Pitfalls
- Treating MPMs as optional if "already in the annual report." IFRS 18.100 requires disclosure in the notes to financial statements regardless of whether the measure appears elsewhere. Entities that only disclose MPMs in the strategic report or front-end commentary will be non-compliant.
- Omitting the tax and NCI disaggregation. Auditors frequently flag reconciliations that show gross adjustments without the required tax effect per IFRS 18.105 — particularly material for entities with complex deferred tax positions or significant minority interests.
- Inconsistent definition across reporting periods. Changing the composition of an MPM (e.g. silently expanding "adjusted" items) without disclosure triggers a compliance breach under IFRS 18.106–107 and raises going-concern and quality-of-earnings questions in audit and regulatory review.
IFRS 18 Management Performance Measures — Key Paragraphs
- IFRS 18.B1–B4 — Definition of an MPM and scope boundaries (what qualifies and what is excluded).
- IFRS 18.100–104 — Core disclosure requirements: description, calculation, and labelled reconciliation.
- IFRS 18.105 — Mandatory tax effect and NCI effect disclosure for each reconciling item.
- IFRS 18.106–107 — Neutrality, labelling, and disclosure of changes to MPM definitions.
- IFRS 18.108 — Requirement to present comparative period reconciliations.
