IFRS Gelato: IFRS 18 - Management-defined performance measures (MPMs)

Management-Defined Performance Measures (MPMs): A Complete Overview

What is an MPM?

A Management-defined Performance Measure (MPM) is a subtotal of income and expenses that an entity uses in public communications outside of its financial statements. It serves to:

Communicate management’s view of an aspect of the entity's overall financial performance to users of the financial statements.
Provide a measure not specifically required to be presented or disclosed by IFRS Accounting Standards.

Examples of MPMs

Based on the standard's illustrations, common examples of subtotals that qualify as MPMs (provided they are used in public communications outside the financial statements) include:

Adjusted Operating Profit: Operating profit adjusted to exclude specific items that management believes do not reflect core ongoing performance, such as restructuring expenses, goodwill impairment losses, or litigation expenses.
Adjusted Profit from Continuing Operations: Profit from continuing operations adjusted to remove the impact of specific one-off gains or losses (e.g., gains on disposal of property, plant, and equipment or associates) and their related income tax effects.

Rebutting the MPM Presumption

An entity is permitted to rebut the presumption that a measure is an MPM if it has reasonable and supportable information demonstrating that:

The subtotal does not communicate management’s view of an aspect of the overall financial performance.
The entity has an alternative reason for using the subtotal in its public communications.

Rebuttal of this presumption focuses on the subtotal as a whole, rather than the individual income or expense items that comprise it. An entity cannot argue that the subtotal fails to reflect management’s view simply because specific components do not individually represent that view. The emphasis is placed strictly on the subtotal's overall role in conveying performance.

Alternative reasons for using a subtotal in public communications include:

The subtotal is required in a public communication by law or regulation.
It communicates performance related to financial statements prepared in accordance with a non-IFRS accounting framework.
It is used to satisfy a request from an external party.
It is used for the purpose of communicating information other than financial performance.

What is NOT Considered an MPM?

The following subtotals of income and expenses do not qualify as MPMs:

Gross profit or loss (Sales / Revenue – cost of sales) or similar subtotals, such as net interest income, net fee and commission income, insurance service result, net financial result, and net rental income.
Operating profit or loss before depreciation, amortisation, and impairments within the scope of IAS 36.
Operating profit or loss and income and expenses from all investments accounted for using the equity method.
A subtotal comprising operating profit or loss and all income and expenses classified in the investing category.
Profit or loss before income taxes.
Profit or loss from continuing operations.
Subtotals comprising "only income" or "only expenses" (the new accounting standard defines MPMs explicitly as subtotals of both income and expenses).
Assets, liabilities, equity, or combinations of these elements.
Measures of liquidity or cash flows.
Non-financial performance measures.

Note on Financial Ratios: A financial ratio is not an MPM because it is not a direct total of income and expenses. However, if the figure used within the ratio (such as the numerator or denominator) qualifies as an MPM on its own, that figure must be treated and disclosed as an MPM, even if it only appears within the ratio.

Public Communications & Reporting Periods

A subtotal only qualifies as an MPM if it is used in public communications outside the financial statements, such as management commentary, press releases, and investor presentations. For this classification, public communications exclude oral communications, written transcripts of oral communications, and social media publications.

MPMs must align directly with the reporting period of the financial statements in which they appear.
If a subtotal is used exclusively in interim financial statements, it is treated as an MPM only in those interim reports.
If used exclusively in annual financial statements, it qualifies as an MPM only in the annual reports.

To identify MPMs for a reporting period, entities should review public communications made during that same period. If communications are normally released after the financial statements are issued, the entity should also review communications from the previous period. If a measure was previously disclosed as an MPM but is subsequently dropped, this constitutes a change or cessation of an MPM. Conversely, an entity that publicly communicates its financial performance using only IFRS-required totals and subtotals does not have an MPM.

Segment Reporting & Qualification Failures

A subtotal from a reportable segment can qualify as an MPM if it reflects an aspect of an entity’s overall financial performance (e.g., when a segment represents the primary business activity and is presented in the statement of profit or loss). However, a subtotal from a reportable segment under IFRS 8 does not qualify as an MPM if it fails to reflect the financial performance of the entity as a whole.

A subtotal may fail to represent management’s view of overall financial performance under the following conditions:

Lack of Prominence: The subtotal is presented in a way that doesn’t stand out. This depends on the extent of references, the content of commentary relying on the subtotal, explanations for period-to-period changes, and comparisons to competitors or industry benchmarks.
Internal Monitoring Only: Management uses a subtotal to evaluate performance but limits its use to internal analysis without disclosing it in external communications.

An entity’s use of a subtotal may change over time, meaning it can either become, or cease to be, an MPM. Judgement is required to determine when this change occurs (e.g., management adopting a regulatory subtotal for internal monitoring or external explanation).

Disclosure Requirements

An entity must present all MPMs in a single note to the financial statements. This note should explain that the measures reflect management’s perspective on overall performance and that they may not be directly comparable to similarly named measures used by other entities.

Application under IFRS 8:
If applying IFRS 8 (Segment reporting), an entity can include MPM information within its segment disclosures if it clearly separates and labels the IFRS 18 disclosures from the IFRS 8 requirements, or if it provides a separate note encompassing all MPM information.

Reconciliation & Tax Effect Disclosures:

Entities must clearly label and describe each MPM to ensure it does not mislead users.
Entities must reconcile MPMs (like adjusted operating profit) to the relevant IFRS operating profit or loss.
For each reconciling item, the entity must disclose the amounts related to financial performance line items and describe how the item is calculated and contributes useful information.
A single explanation may cover multiple reconciling items if they share a common basis (e.g., being 'non-recurring').
Income tax effects for reconciling items must be calculated using statutory tax rates applicable to the transactions, a reasonable pro rata allocation, or another appropriate method.
Revisions, introductions, or discontinuations of MPM calculations or related tax effect determinations must be disclosed, and assessing comparative impracticability requires applying IAS 8.

IFRS 18 Application Examples

Table 1: Management-defined performance measures 2025

Category	IFRS ($'000)	Impairment losses ($'000)	Restructuring expenses ($'000)	Gain on disposal of PPE ($'000)	MPM ($'000)
Other operating income	-	-	-	(1,800)	-
Research & development	-	1,600	-	-	-
General & administrative	-	-	3,800	-	-
Goodwill impairment loss	-	4,500	-	-	-
Operating / Adjusted profit	57,000	6,100	3,800	(1,800)	65,100
Income tax expense	-	-	(589)	297	-
Profit from continuing ops	32,100	6,100	3,211	(1,503)	39,908
Non-controlling interests	-	305	161	-	-

Impairment losses: Incurred in 20X2 without tax benefits as they were ineligible for tax deductions in Country A and Country B.
Restructuring expenses: Related to the 'Apollo 20X2' programme, including redundancy, retraining, and relocation expenses for factory closures in Country C. The tax effect is calculated based on the 15.5% statutory rate in Country C.
Gains on disposal of PPE: Tax effect is calculated based on the 16.5% statutory rate in Country D.

Table 2: Management-defined performance measures 2024

Category	IFRS ($'000)	Impairment losses ($'000)	Litigation expenses ($'000)	Gains on disposal ($'000)	MPM ($'000)
Research & development	-	1,500	-	-	-
General & administrative	-	-	3,500	-	-
Operating / Adjusted profit	51,800	1,500	3,500	-	56,800
Profit/gains from associates	-	-	-	(2,200)	-
Income tax expense	-	75	-	-	-
Profit from continuing ops	29,925	1,500	3,500	(1,881)	33,044
Non-controlling interests	-	75	-	-	-

Impairment losses: Incurred in 20X1 without tax benefits as they were ineligible for tax deductions in Country E.
Litigation expenses: Incurred in 20X1 without tax benefits as they were ineligible for tax deductions in Country F.
Gains on disposal: Relates to associates and joint ventures. Tax effect is calculated based on the 14.5% statutory rate in Country G.

Table 3: Vertical Presentation – Operating Profit (2025)

Item	Component ($'000)	Subtotal ($'000)
Operating profit (IFRS)	-	57,000
Impairment losses (R&D / Goodwill)	1,600 / 4,500	6,100
Restructuring expenses (G&A)	3,800	3,800
Gains on disposal of PPE (Other income)	(1,800)	(1,800)
Adjusted operating profit (MPM)	-	65,100

Researched and written by Aamir Sheikh

Extract from IFRS 18 book written by Aamir Sheikh

amr.