IFRS 18 marks a new chapter after IAS 1, introducing the most significant changes to financial statement presentation in over 20 years.
Most finance teams are familiar with the key change: new mandatory subtotals, including operating profit, are now required in the profit and loss statement.
But there’s another significant change that’s often overlooked. IFRS 18 brings structure and transparency to the adjusted performance measures companies have long used to communicate with investors.
That second change is about Management-defined Performance Measures, or MPMs. And it may affect you even if you’ve never heard the term before.
So, What Exactly Is an MPM?
Every earnings call has a moment like this: “Excluding one-time restructuring costs, our adjusted operating profit was…” That “adjusted” number is not required by any accounting standard. Management created it to tell investors their own version of the performance story.
IFRS 18 gives this kind of number an official name a Management-defined Performance Measure and defines it using a three-part test. A number is an MPM only if it meets all three:
- It’s used in public communications outside the financial statements such as management commentary, press releases, or investor presentations (oral remarks, call transcripts, and social media posts are excluded)
- It represents management’s view of some aspect of the entity’s overall financial performance
- It’s a subtotal of income and expenses that IFRS doesn’t already require or specifically defined
If your CEO said “adjusted EBITDA” or “adjusted operating profit” in last quarter’s earnings call or investor deck, you may already have an MPM sitting in your reporting without it ever being labelled as one.
From APMs to Non-GAAP Metrics to MPMs: Same Numbers, New Rules
These “adjusted” numbers aren’t new. Companies have used them for years, just under different names: Alternative Performance Measures (APMs) or non-GAAP metrics. They were never officially part of the financial statements. Companies could report them however they liked, in press releases or investor decks, with no fixed format, no consistent method, and very little oversight. Two companies could use the exact same term and mean two completely different things.
IFRS 18 changes that. These same numbers now have an official name Management-defined Performance Measures (MPMs) and, for the first time, a formal set of rules around how they must be disclosed.
IFRS 18 doesn’t prohibit adjusted performance measures. Instead, it introduces a formal framework for reporting them. Once a measure meets the definition of a Management-defined Performance Measure (MPM), it must be disclosed in a dedicated audited note within the financial statements, along with by the required reconciliations and explanations.
The MPM Checklist: Does Your “Adjusted” Number Qualify?
Before you can disclose anything, you need to work out whether a measure you’re already using actually counts as an MPM. Run it through this simple checklist:
- Have we used this number (or something like it “adjusted,” “underlying,” “normalized”) in a press release, investor deck, or management commentary in the last year?
- Does it represent our overall financial performance, not just one department or product line?
- Is it a subtotal of income and expenses not a ratio, not a cash flow number, not a non-financial metric?
- Is it different from a subtotal IFRS already requires, like gross profit or operating profit?
If all four criteria are met, the measure is likely to qualify as an MPM. IFRS 18 also adopts a conservative approach by presuming that subtotals of income and expenses included in external communications are MPMs, unless an entity can demonstrate otherwise.
What Does NOT Count as an MPM
This is where a lot of confusion happens, so it’s worth being explicit. The following do not meet the MPM definition, even if management talks about them constantly:
- Non-financial metrics carbon emissions, occupancy rate, employee or customer satisfaction
- Financial measures that aren’t income/expense subtotals free cash flow, return on equity, net debt
- Ratios including sector-specific ones like combined ratio or loss ratio for insurers
- IFRS-required subtotals operating profit, profit before tax, even if management highlights them heavily
If It Is an MPM, What Do You Have to Disclose?
Once a measure qualifies, IFRS 18 requires a single, dedicated note in the financial statements covering:
- What it represents a clear description of the aspect of performance the MPM communicates, and why management believes it helps users understand performance better
- How it’s calculated the exact methodology
- A full reconciliation back to the closest IFRS-defined subtotal, including the income tax effect and the impact on non-controlling interests for each reconciling item. IFRS 18 also requires an explanation of how the income tax effect for each reconciling item was determined, not just the tax figures themselves.
- A comparability disclaimer a statement that this MPM is management’s own view and may not be comparable to a similarly named measure at another company
The Audit Shift: Why This Changes the Stakes
This may be the biggest practical change for many companies.
In the past, adjusted performance measures were usually included outside the audited financial statements. They were covered by ISA 720, meaning auditors reviewed them, but they were not audited in the same way as the financial statements.
IFRS 18 changes that. Qualifying MPMs must now be included in the audited financial statements, bringing them within the scope of ISA 200.
Auditors will check whether:
- the measure qualifies as an MPM;
- the reconciliation to the IFRS numbers is accurate; and
- the related disclosures are complete and reliable.
In other words, measures like adjusted EBITDA will receive much closer audit attention than before.
What If You Change, Add, or Drop an MPM?
Thinking about changing an MPM? IFRS 18 expects more than just a revised calculation. Companies must explain any new, changed, or discontinued MPMs, along with the reasons for the change. Because these changes may also require comparative periods to be updated, they shouldn’t be treated as a last-minute reporting decision.
Why This Matters Now, Not Later
Although IFRS 18 becomes effective in 2027, preparation should start much earlier. Identifying all Management-defined Performance Measures (MPMs), building reconciliation processes, and preparing audit-ready documentation takes time. This is especially true for companies that have used multiple adjusted measures across different reports without a consistent reporting process.
Getting Ahead of the MPM Requirement: A Practical Starting Point
Before the deadline pressure hits, it helps to:
- Inventory every non-GAAP measure used across earnings calls, investor decks, press releases, and management commentary over the last few reporting periods
- Run each one through the MPM checklist above
- Decide deliberately sometimes it’s simpler to retire a measure than to build full disclosure and reconciliation infrastructure around it
- Document the calculation methodology for each MPM you keep, before an auditor asks for it
Not every “adjusted” number is an MPM, and not every MPM is a problem. The goal is not to panic, it’s to know exactly where you stand before your auditor tells you.
How IRIS CARBON Helps You Get Ahead of MPM Compliance
Manually tracking every adjusted measure across investor decks, earnings scripts, and press releases then keeping reconciliations, tax effects, and NCI impacts consistent every reporting period is exactly the kind of work that falls through the cracks under deadline pressure. IRIS CARBON helps by:
- Centralizing your MPM inventory one place to track every non-IFRS measure used in external communications, so nothing surfaces as a surprise during audit
- Structured reconciliation workflows built-in templates that map each MPM back to its nearest IFRS subtotal, with tax effect and non-controlling interest breakdowns built in
- Version tracking automatic flags when an MPM’s definition or calculation changes period to period, so the required disclosure and restatement conversation happens early, not late
- Audit-ready documentation a timestamped calculation and change history for every MPM, ready for ISA 200-level scrutiny
Don’t wait for your auditor to ask where “adjusted EBITDA” came from. Know it, document it, and reconcile it before they do.
Frequently Asked Questions (FAQs)
1) What is a Management-defined Performance Measure (MPM) under IFRS 18?
Ans. An MPM is a subtotal of income and expenses that management uses in public communications (like earnings calls, press releases, or investor decks) to convey its own view of the entity’s financial performance — and that IFRS doesn’t already require or define. Common examples include “adjusted EBITDA” or “adjusted operating profit.”
2) How do I know if my company’s “adjusted” number qualifies as an MPM?
Ans. Run it through IFRS 18’s three-part test: it must be used in public communications outside the financial statements, represent management’s view of overall performance, and be a subtotal of income/expenses not already required by IFRS. If a measure meets all three, IFRS 18 presumes it’s an MPM unless you can demonstrate otherwise.
3) What do companies have to disclose for each MPM?
Ans. A single, dedicated note in the financial statements must cover: what the measure represents and why it’s useful, how it’s calculated, a full reconciliation to the closest IFRS-defined subtotal (including tax and non-controlling interest effects), and a disclaimer that it may not be comparable to similarly named measures at other companies.
4) Will MPMs be audited under IFRS 18?
Ans. Yes — this is one of the biggest practical changes. Previously, adjusted measures fell under ISA 720 (reviewed, not audited). Under IFRS 18, qualifying MPMs move into the audited financial statements and fall under ISA 200, meaning auditors will scrutinize whether the measure qualifies as an MPM, whether the reconciliation is accurate, and whether the disclosures are complete.
5) When does IFRS 18 take effect, and when should companies start preparing?
Ans. IFRS 18 becomes effective in 2027, but companies should start preparing well before then. Identifying all MPMs, building reconciliation processes, and preparing audit-ready documentation takes time — especially for companies using multiple adjusted measures inconsistently across reports.
