additional performance measures

Question 1

purpose of financial reporting

Answer 1

purpose of financial reporting is to provide information to current and potential investors, lenders and other creditors that will enable them to make decisions about providing economic resources to an entity

Question 2

what do investors assess

Answer 2

• an entity’s potential future cash flows and
• management stewardship of the entity’s economic resources

Question 3

advantages of APMs

Answer 3

• helping users of financial information to evaluate an entity through the eyes of the management
• enabling comparison between entities in the same sector or industry
• stripping out elements that are not relevant to current or future year operating performance

Question 4

drawbacks of APMs

Answer 4

• An entity might calculate an APM in a different way year-on-year
• Two entities might calculate the same APM in a different way
• Entities often provide little information about how an APM is calculated or how it reconciles with the figures presented in the financial statements
• APMs might be selected and calculated so as to present an overly optimistic picture of an entity’s performance
• Too much information can be confusing to users of the financial statements
• Giving an APM undue prominence may mislead users of the financial statements into believing it is a requirement of IFRS Standards.