Management-Defined Performance Measures in IFRS 18: Full Guide

The introduction of management-defined performance measures IFRS 18 represents the most consequential structural change to international financial reporting in over two decades. Historically, non-GAAP metrics like adjusted EBITDA and underlying operating profit lived in unregulated earnings presentations, press releases, and investor slide decks. By establishing codified definitions under paragraph 117 of IFRS 18 and anchoring these metrics directly inside the audited financial statement footnotes, the IASB is imposing unprecedented regulatory discipline on corporate disclosures. Below: what qualifies as an MPM, which popular liquidity and balance sheet metrics are explicitly excluded, where and how footnote reconciliations must be presented, why external auditors must now verify these numbers, and how IFRS 18 compares to SEC Regulation G.

A management-defined performance measure (MPM) is a subtotal of income and expenses that is used in public communications outside the financial statements to communicate management’s view of an aspect of the entity’s financial performance, according to the International Accounting Standards Board (IASB) (April 2024).

• Standard Issuance: April 9, 2024 (IASB, April 2024)
• Global Effective Date: Annual reporting periods beginning on or after January 1, 2027 (with retrospective comparative periods)
• Governing Standard: IFRS 18, Presentation and Disclosure in Financial Statements (replacing IAS 1)
• Audit Perimeter: Full inclusion within the statutory external audit via a dedicated single footnote
• Tax & NCI Requirement: Mandatory line-by-line tax and non-controlling interest effect disclosures for every reconciling adjustment

1. What is a management-defined performance measure in IFRS 18?
2. What qualifies as an MPM under IFRS 18?
3. Which performance metrics are excluded from MPM requirements?
4. Where and how must MPMs be disclosed in the financial statements?
5. Why does IFRS 18 bring non-GAAP measures under audit review?
6. How do IFRS 18 MPMs compare to SEC Non-GAAP Reg G measures?
7. Frequently asked questions
8. Conclusion
9. Read next

What is a management-defined performance measure in IFRS 18?

The regulatory framework governing management-defined performance measures IFRS 18 brings customized corporate earnings numbers into the official accounting codification. For decades, executives argued that standard accounting totals failed to capture their true operational momentum, leading to the proliferation of non-GAAP and alternative performance measures (APMs). Under IFRS 18, the IASB provides a formal mechanism for management to present these custom views, but conditions that presentation on strict footnote transparency, mathematical reconciliations, and external audit oversight.

An MPM is fundamentally a profit-and-loss metric. To be classified as an MPM, a metric must represent a subtotal of income and expenses that is not explicitly required or specified by IFRS Accounting Standards. Common examples include Adjusted Operating Profit, EBITDA, Adjusted Net Profit, and Operating Profit before Exceptional Items. If management highlights these figures in annual reports, investor presentations, or earnings press releases, the entity must bring those exact metrics into the audited notes.

IFRS 18 requires any custom subtotal of income and expenses used in external public communications to be formally reconciled inside the audited financial statements.

The standard establishes a permanent bridge between unregulated investor relations commentary and audited statutory accounting. Preparers can no longer report an optimistic adjusted earnings number to Wall Street or the London Stock Exchange without subjecting the underlying calculation mechanics to external audit scrutiny, reinforcing why transparent reporting serves as the foundation of business literacy, as discussed in our analysis of why accounting is the language of business.

What qualifies as an MPM under IFRS 18?

Under paragraph 117 of IFRS 18, a financial metric must satisfy three cumulative criteria to qualify as a management-defined performance measure:

• Criterion 1 — Subtotal of Income and Expenses: The measure must be a mathematical subtotal of income and expenses, representing a net numerical amount derived from the statement of profit or loss.
• Criterion 2 — Public Communication Outside Financial Statements: The measure must be used in public communications outside the financial statements, such as management commentary, interim press releases, annual reports, investor roadshows, or regulatory filings.
• Criterion 3 — Management’s View Context: The measure must communicate management’s view of an aspect of the financial performance of the entity as a whole to external capital providers.

A metric is not an MPM if it is already a required or commonly defined subtotal under IFRS 18. The new standard establishes three mandatory categories on the face of the income statement (Operating, Investing, and Financing) and prescribes mandatory subtotals including Operating Profit and Profit before Financing and Income Taxes. Because these subtotals are required by GAAP, they are not management-defined.

Any custom income or expense subtotal that satisfies all three paragraph 117 criteria triggers mandatory MPM footnote disclosures.

The IASB also clarified that paragraph 117 contains no computational constraints. A performance metric can qualify as an MPM even if it incorporates non-cash adjustments or normalized items, provided it mirrors management’s strategic assessment. However, metrics mentioned solely in oral earnings calls, informal social media commentary, or private meetings with lenders are excluded from triggering MPM status.

Which performance metrics are excluded from MPM requirements?

Determining what does not qualify as an MPM is just as critical as identifying what does. Because the IFRS 18 definition is strictly confined to subtotals of income and expenses, many widely cited corporate KPIs fall entirely outside the MPM perimeter.

Metric Classification	MPM Status Under IFRS 18	Examples	Exclusion Rationale
Subtotals of Income & Expenses	Yes (Qualifies as MPM)	Adjusted EBITDA, Core Operating Profit, Adjusted Net Income	Direct subtotal of profit and loss reflecting management’s view
Cash Flow & Liquidity Metrics	No (Excluded)	Free Cash Flow, Operating Cash Flow, Adjusted Free Cash Flow	Measures cash movements rather than income and expenses
Balance Sheet & Equity Items	No (Excluded)	Net Debt, Working Capital, Net Tangible Assets, Return on Equity	Reflects financial position or capital structure, not P&L subtotals
Financial Ratios	No (Excluded)	Operating Margin, Debt-to-EBITDA, Return on Capital Employed (ROCE)	A ratio is a relationship between two numbers, not a simple subtotal
Non-Financial & ESG Metrics	No (Excluded)	Customer Retention Rate, Carbon Intensity, Active Subscriptions	Operational and non-financial measurements

Corporate accounting teams must note an essential regulatory nuance regarding financial ratios: while a ratio itself is excluded from being an MPM, if the numerator or denominator in that ratio is a custom subtotal of income and expenses (such as Adjusted EBITDA in an Adjusted EBITDA Margin calculation), that underlying subtotal must be disclosed as an MPM in the footnote.

Cash flow indicators, balance sheet aggregates, and non-financial KPIs are excluded from MPM requirements under IFRS 18.

The strict income-and-expense boundary prevents footnote disclosures from becoming cluttered with extraneous operational metrics. Financial teams can continue to present free cash flow and customer churn in management commentary without being forced to reconcile them within the audited notes, similar to how standard-setters isolate specific assets in standards like FASB environmental credit accounting under Topic 818.

Where and how must MPMs be disclosed in the financial statements?

IFRS 18 establishes strict location and content mandates for management-defined performance measures. All MPM disclosures must be consolidated within a single, dedicated note in the financial statements. Companies are strictly prohibited from scattering MPM explanations across different sections of the annual report.

Within this dedicated footnote, an entity must provide five mandatory disclosure elements for every individual MPM presented:

• Statement of Use: A clear explanation describing why management believes the MPM provides useful information about the entity’s financial performance.
• Calculation Methodology: A detailed narrative and formula describing how the measure is calculated from the underlying accounts.
• Direct Reconciliation: A line-by-line quantitative reconciliation linking the MPM directly back to the most directly comparable subtotal or total specified in IFRS 18 (e.g., reconciling Adjusted Operating Profit to IFRS Operating Profit).
• Tax and Non-Controlling Interest (NCI) Effects: The entity must disclose the specific income tax effect and the effect on non-controlling interests for each reconciling item in the table.
• Historical Consistency & Restatement: If management changes how an MPM is calculated or introduces a new measure, it must explain the reason for the change and provide restated comparative figures.

Every reconciling adjustment between an MPM and the closest IFRS-defined subtotal must explicitly show its individual income tax and NCI impact.

The requirement to calculate the income tax effect for each individual adjustment represents a substantial operational burden. Finance teams cannot apply a flat statutory tax rate (such as 25%) across all reconciling items. They must determine the actual tax impact based on the specific jurisdiction and tax deductibility of each individual adjustment. (Standard-setters created a single footnote requirement to simplify disclosures; tax accounting teams immediately realized nothing about individual adjustment tax tracing is simple.)

Why does IFRS 18 bring non-GAAP measures under audit review?

The primary motivation behind the MPM mandate in IFRS 18 is addressing investor skepticism regarding arbitrary non-GAAP adjustments. In corporate practice, companies have frequently excluded recurring operational costs—such as restructuring expenses, share-based compensation, or litigation settlements—from their custom earnings numbers, painting an artificially favorable picture of underlying profitability.

By pulling MPMs into the financial statement footnotes, IFRS 18 places these custom subtotals directly inside the statutory external audit perimeter. External auditors (such as PwC, Deloitte, EY, and KPMG) must now perform substantive audit procedures on the mathematical accuracy of the reconciliations, verify the consistency of adjustments across reporting periods, and evaluate whether management’s statement of use is balanced and not misleading.

Placing MPMs in the footnote schedules brings customized performance metrics into the statutory scope of the external audit.

In practice, corporate controllers are discovering that many custom adjustments previously used in investor pitch decks lack the internal controls required for an external audit. In a technical accounting discussion on Reddit, an international reporting manager noted the governance shockwaves caused by the new standard:

Our investor relations team had been presenting an ‘Adjusted Core Operating Margin’ in our quarterly slide decks that pulled out half our IT restructuring expenses. When we modeled the IFRS 18 note, our audit partner informed us that every single excluded software cost would require jurisdictional tax tracing and formal control documentation under the audit plan.

Reddit r/Accounting

Review the primary source standard on the IFRS Foundation portal to determine whether your organization’s custom performance measures meet the documentation thresholds required for external audit sign-off.

How do IFRS 18 MPMs compare to SEC Non-GAAP Reg G measures?

Multinational corporations listed in both the United States and international markets must navigate the significant structural differences between IFRS 18 MPM requirements and the U.S. Securities and Exchange Commission (SEC) rules under Regulation G and Item 10(e) of Regulation S-K.

Regulatory Dimension	IFRS 18 Management-Defined Performance Measures	SEC Regulation G / Item 10(e) Non-GAAP Measures
Reporting Location	Mandatory single note inside audited financial statements	Outside financial statements (MD&A, earnings releases, 8-K)
External Audit Scope	Fully subject to statutory external audit	Un-audited; subject to disclosure controls & procedures
Metric Scope	Strictly subtotals of income and expenses	Broad; covers P&L subtotals, cash flows, and balance sheet items
Tax Effect Disclosure	Mandatory line-by-line tax effect for every single adjustment	Aggregate tax adjustment or narrative explanation
Non-Controlling Interests	Mandatory NCI effect disclosure per adjustment	No specific NCI disaggregation requirement
Equal Prominence Rule	Standard IFRS subtotals govern the primary financial statements	GAAP measures must be displayed with equal or greater prominence

While SEC Regulation G governs non-GAAP metrics presented outside financial statements, IFRS 18 brings custom P&L subtotals into the audited financial report.

For foreign private issuers (FPIs) filing Form 20-F with the SEC, IFRS 18 creates a unique regulatory bridge. Because MPMs are required footnote disclosures under IFRS, they are considered GAAP-mandated disclosures rather than non-GAAP measures under SEC rules, altering how these subtotals interact with SEC staff review comments. Upgrading financial ledger systems to automate these dual-track reporting obligations reflects modern financial operations, as examined in our guide to accounting information system architecture.

Verified September 2026. IFRS 18 is mandatory for annual periods beginning on or after January 1, 2027; this page is updated when the IASB or IFRIC issues further MPM implementation guidance.

Conclusion

Management-defined performance measures under IFRS 18 end the era of unregulated corporate earnings adjustments. By bringing custom subtotals into the audited financial statement footnotes and enforcing rigorous tax and NCI tracing, the IASB has established a new global benchmark for corporate transparency. The days of presenting casual adjusted metrics in investor slide decks without audit consequences are over. Begin inventorying your public communications and testing your tax effect calculations well before the January 2027 effective date.

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