FSA keeps watch on indicators

The Financial Services Authority has advised companies using alternative
profit measures in their IFRS accounts to ‘use them properly’ or face the City
watchdog’s full force.

‘We are responsible for ensuring that the information companies prepare for
the market is not misleading,’ an FSA spokeswoman said. ‘The headings under IFRS
are less defined, but if alternate profit measures are used we will check that
they are used properly.’

Since the introduction of IFRS, companies have had to include the impacts of
pension expenses, financial instrument revaluations and stock options costs in
their accounts.

Certain groups have responded by producing alternative profit indicators,
ignoring these factors, in an effort to produce a clearer picture of underlying

Some experts are concerned about the comparability of statements between
companies using disparate non-statutory indicators.

Peter Elwin, head of accounting and valuation at Cazenove, said it was too
early to tell if there would be a widespread move to providing alternate
measures, but added that financial instrument impacts was one area where
companies would diverge.

‘The market is likely to exclude fair value movements on financial
instruments from earnings per share estimates. Many companies are likely to
provide a profit measure excluding these figures,’ said Elwin.

Earlier this week France’s stock market regulator, Autorité des Marchés
Financiers, said it was considering reminding companies to present clear figures
under IFRS.

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