Presentation of income under IFRS:
flexibility and consistency explored*
Survey of 2,800 European financial statements
01 Executive summary
04 The scope of our research
06 Main findings of the research
15 Appendix
Contents
Belgium
Yves Vandenplas
+32 2 710 4029
Denmark
Jens Otto Damgaard
+45 39 45 3410
France
Bénédicte Thibord
benedicte.thibord@fr.pwc.com
+33 1 56 57 86 48
Germany
Armin Slotta
+49 69 9585 1220
Italy
Roberto Adami
+39 0 422 696 911
Netherlands
Alexander Spek
alexander[email protected]
+31 20 568 4320
Spain
Gonzalo Sanjurjo Pose
+34 91 568 4989
UK
Ian Dilks
+44 20 7583 5000
Global Accounting Consulting Services
Ian Wright
+44 20 7583 5000
Contacts
For further information or to discuss any of the issues raised by this report, please contact
your regular PricewaterhouseCoopers representative or one of the following contacts:
Additional measures
can benefit the market
by giving investors
greater insight into
companies and how
they are managed
Introduction
This research looks at the additional income measures companies include in their financial
statements beyond the minimum required by International Financial Reporting Standards (IFRS).
It also examines the way companies present these non-GAAP measures in their income
statements. See scope page 4 and 5.
PricewaterhouseCoopers has sponsored PwC senior manager Arjan Brouwer in this significant
review of 2,800 companies’ financial statements for his PhD at the University of Amsterdam.
This report of Mr Brouwer’s findings is intended to be a useful starting point for management
and finance departments as they re-evaluate the effectiveness of their communications strategy
in an IFRS world.
Why additional income measures are included in financial statements
Additional measures can benefit the market by giving investors greater insight into companies
and how they are managed. During previous PricewaterhouseCoopers’ research in Canada, the
US and the UK, investors told us that they find additional income measures useful and take
them into account when making investment decisions. In particular, they are looking for non-
GAAP measures that management use to run the business, as well as consistency of information
over time, and comparability of information among companies (particularly in the same industry).
The European Commission (EC) was working to improve comparability of financial information
– and create pan-European capital markets – when it decided to require all listed companies
in the EU to report using a single set of international accounting standards. The move to IFRS
has certainly seen a big improvement in comparability across Europe and investors indicated
that they were positive about this change in our 2006 survey – IFRS: the European investors’ view.
But what about reporting of additional income measures? Is this meeting investors’ needs for
comparability, consistency and insight?
What the regulators and standard setters say
There is some flexibility around what non-GAAP measures companies can present as IFRS does
not prohibit additional measures in the financial statements. Indeed that IASB acknowledges
that additional earnings measures may be useful and, when included in the financial statements,
it wants them to be explained and reconciled to GAAP numbers in the notes, as required for
example by IAS 33, Earnings Per Share.
The Committee of European Securities Regulators (CESR) has acknowledged the widespread
use of non-GAAP measures and has issued recommendations highlighting the need for clarity
between GAAP requirements and additional non-GAAP measures.
National regulators’ views vary about how to approach the inclusion of non-GAAP measures
in the financial statements and this influences presentation in different territories.
• The US Securities and Exchange Commission (SEC), for example, generally discourages
or prohibits non-GAAP measures on the face of the income statement.
• In the Netherlands, both the stock exchange regulator (AFM) and the Institute for Public
Auditors (NIVRA) have opposed the use of measures like EBITDA.
• By comparison in France, the local standard setter has recommended separate reporting
of exceptional items in the income statements.
1
Executive summary
Survey of IFRS financial statements: presentation of income
Executive summary
PricewaterhouseCoopers
National regulators’
views vary about exactly
how to approach the
inclusion of non-GAAP
measures
2
• The Financial Reporting Review Panel (FRRP) in the UK said that non-GAAP measures should
not be given undue prominence. It has called for the narrative sections of the annual report
to include income measures that are consistent with the income statement and for clear
definitions and reconciliation of non-GAAP measures with the required GAAP measures.
All of this suggests that the international debate on the use of non-GAAP measures is just
beginning. The International Accounting Standards Board (IASB) and the US Financial Accounting
Standards Board (FASB) are currently considering financial statement presentation in a joint-
project that could have a significant influence on this area. However, the timing of a final standard
has not yet been determined.
What the findings show
No evidence of cherry-picking
It is a positive sign that companies do not appear to have cherry-picked additional income
measures to show their results in a more positive light. This is indicated by the fact that the
overall trends (rise or fall) for the alternative income measures reported were very similar to
the trends for the required IFRS measure – net profit.
We also found that companies generally met the IFRS presentation requirements for the income
statement. This is a significant achievement in the first year of widespread IFRS implementation.
A bridge from old reporting to IFRS
In the first year of IFRS reporting, management had to decide how best to communicate their
new data – not just the new IFRS numbers but also the non-GAAP measures that they had
traditionally prepared and shared with the market.
The research found that companies have aligned their choice and presentation of non-GAAP
measures as much as possible with what was used in the past, offering the reader consistency
of presentation over time. However, these non-GAAP measures are now calculated using IFRS
(instead of national GAAP) recognition and measurement principles. This means that there are
still a range of different non-GAAP measures and presentations being reported but significant
country and industry trends have been sustained during the change to IFRS, for example:
•
EBITDA and similar measures. Use of these headings on a country by country basis was
consistent between 2004 and 2005 reporting periods – for example, in the UK 31% of
companies reported these measures in 2004 under national GAAP and 32% in 2005 under
IFRS. See pages 6-8.
•
Results excluding non-recurring items. Overall, the number of companies reporting these
results was fairly consistent – so countries that have traditionally reported these measures
continued to do so and those that had never used certain terms, such as ‘current operating
income’, did not start to do so. However, in the area of reporting results excluding non-
recurring items we do see some interesting developments in the use of specific measures
between 2004 and 2005. See pages 9-10.
•
Income statement. Similarly, former national practices for including and presenting
information on the face of the income statement – such as using additional columns and
boxes – have been retained. This consistent look and feel with previous practice may well
have been a helpful management strategy to make investors feel comfortable with the new
IFRS reporting, even though the underlying numbers had changed. See pages 11-14.
Management opted for
a consistent choice and
presentation of non-GAAP
measures between
2004 and 2005 so that
they did not add to the
burden of change
Survey of IFRS financial statements: presentation of income
Executive summary
PricewaterhouseCoopers
3
These findings suggest that in their first IFRS financial statements, management opted for
a consistent choice and presentation of non-GAAP measures between 2004 and 2005 so that
they did not add to the burden of change when there was already a very significant shift in the
recognition and measurement of many of the underlying IFRS numbers. This has made the look
and feel of reports familiar to investors and built a bridge between the old national GAAP and
the new IFRS financial statements.
International comparability of non-GAAP reporting in this first year of application was unlikely
to arise spontaneously as management had little opportunity to compare reporting practices
with their peers and they were unable to respond to past experience of IFRS-related discussions
with investors, regulators and other parties. In addition, many conferences and industry
sessions focused on recognition and measurement with less attention on format requirements
and options for additional line items in the income statement, so there was no platform for
development of market norms.
In the longer term, this variety of non-GAAP measures and presentation will be reassessed by
the market as the usefulness of the information is lessened when investors cannot make direct
comparisons internationally among companies in the same industry sector. Too much diversity in
presentation may also create a perception of differences where they don’t actually exist, and
contribute to inefficient pricing of debt or equity by the capital markets to the detriment of both
companies and investors.
Expected developments
Investors tell us that non-GAAP measures are useful where they provide additional perspectives
and companies will therefore continue to report them. We should not be aiming for wholesale
uniformity of presentation or a prohibition on additional, non-GAAP measures that the markets
find useful. The best improvements are likely to come from a continued level of experimentation.
Regulators therefore need to work together to avoid enforcing different national preferences
(see page 1) as this makes it difficult for market forces to influence convergence around similar
measures for particular industries.
There is an opportunity now for management to look at what their peers are doing and consider
whether the current diversity of non-GAAP income measures and presentations hold any
clues for better ways of communicating with investors in the IFRS environment in future.
Arjan Brouwer
Research leader and senior manager, PricewaterhouseCoopers Netherlands
Leandro Van Dam
IFRS partner, PricewaterhouseCoopers Netherlands
Ian Wright
IFRS global partner, PricewaterhouseCoopers
Too much diversity
in presentation may
create a perception of
differences where they
don’t actually exist
Survey of IFRS financial statements: presentation of income
Executive summary
PricewaterhouseCoopers
We should not be aiming
for wholesale uniformity
of presentation or a
prohibition on additional,
non-GAAP measures
4
This research was conceived and conducted by Arjan Brouwer, PricewaterhouseCoopers
senior manager, as part of his doctorate with the university of Amsterdam in the Netherlands.
His research is sponsored by PricewaterhouseCoopers.
What we set out to investigate
The use of non-GAAP income measures in company financial statements is widespread under
national GAAP. We therefore set out to discover whether the implementation of IFRS has changed
these practices. In particular, we examined:
1. What kind of additional non-GAAP information do companies choose to include in their IFRS
financial statements that are not specifically required by the standards?
2. How pervasive is the use of these non-GAAP measures throughout the financial statements?
3. Is there consistency in the use of these measures over time (2004 to 2005 year-end reports);
and between national GAAP and new IFRS?
4. How comparable is the use of these measures amoung companies internationally and at
the country and industry levels?
5. How often do companies present these measures on the face of the income statement?
And is there reasonable comparability between companies?
6. How do companies present the non-GAAP measures in their income statements?
Does this make different companies’ income statements easy to compare internationally?
Our approach
Looking across the whole of the financial statements
To answer the first four questions above, we first reviewed the use of non-GAAP additional
income measures in the 2004 and 2005 financial statements (including the notes to the accounts)
of a wide range of companies from the three largest European capital markets: the UK, France
and Germany. The research covered approximately 2,800 financial statements – 1,300 from 2005
and 1,500 from 2004.
We looked at two distinct groups of additional income measures: results excluding depreciation
and/or amortisation (EBITDA and similar measures); and results excluding certain non-recurring
items. We examined territory and industry comparability for these areas (the most interesting
results are included in this report).
The scope of our research
Survey of IFRS financial statements: presentation of income
The scope of our research
PricewaterhouseCoopers
We set out to
discover whether
the implementation
of IFRS had
changed practices
5
Survey of IFRS financial statements: presentation of income
The scope of our research
PricewaterhouseCoopers
Focusing on the income statement
To find out how much companies use these non-GAAP measures on the face of the income
statement (rather than the rest of the financial statements) and whether the presentation of the
information was comparable between companies (questions five and six above), we examined
the 2005/2006 income statements of 250 companies from eight European countries. In addition,
we reviewed the income statements for the use of operating profit and EBIT.
Denmark (25)
UK (71)
Germany (42)
Belgium (19)
Netherlands (25)
France (40)
Italy (*15)
6%
5%
8%
10%
10%
16%
17%
28%
Spain (*13)
Income statements reviewed per country
Base: 250 companies income statements *small sample size
United KingdomGermanyFrance
2004
2005
Total
0 500 1000 1500 2000 2500 3000
Number of financial statements per country
Base: 2,800 financial statements
We reviewed 2,800
sets of financial
statements and...
...focused in detail
on 250 income
statements
6
The use and presentation of non-GAAP income measures in company financial statements is
widespread and has become the subject of intense debate over the past few years. The first
year of required IFRS reporting in Europe precipitated a small but significant number of enquiries
from regulators about the use and relevance of these measures, particularly when they appear
on the face of the income statement.
We looked first at results excluding depreciation and/or amortisation (EBITDA and similar
measures); and results excluding certain non-recurring items. Finally, we focused closely on
the use and presentation of these measures on the face of the income statement, and examined
how many companies report operating profit or EBIT on the face of the income statement.
Non-GAAP income measures reported in IFRS financial statements
Use of EBITDA and similar measures
Significant national differences
This group of non-GAAP income measures excludes depreciation and/or amortisation, such
as EBITA, EBITDA, EBITAE and EBITDAE and similar measures (EBITDAE is earnings before
interest, tax, depreciation, amortisation and exceptionals). We examined the use of these
measures in companies’ financial statements in the largest European capital markets (France,
Germany and the UK).
The research showed that companies generally maintained a consistent pattern of reporting
on these measures under IFRS compared to their previous national GAAP reporting, with only
a slight overall increase in the use of these measures between 2004 and 2005 (see first chart
on page 7). The move to IFRS did not result in territory convergence of the use of these
measures. The biggest difference was between Germany – where 59% of companies reported
on these measures – and the UK, where only 32% of companies did so.
Main findings of the research
Income measures examined % of companies reporting
in 2005 financial statements
(sample size 1,300)
% of companies reporting
in 2005 income statement
(sample size 250)
1 EBITDA and similar measures 44% 10%
2 Profit excluding non-recurring items 34% 26%
3 Operating profit/ EBIT Not investigated 96%
Companies maintained
a consistent pattern
of reporting on EBITDA
and similar measures
under IFRS compared to
their previous national
GAAP reporting
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
7
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
2005 2004
France
Germany
United Kingdom
0 10 20 30 40 50 60
%
EBITDA and similar measures disclosed in the financial statements as a whole – by country
Base: 2,800 companies (1,500 in 2004; 1,300 in 2005)
To gain more insight into these differences, we took a closer look at the income statement for
250 companies across eight countries. Overall, approximately 10% of the companies in our
sample reported EBITDA or similar measures as a subtotal on the face of the income statement,
indicating that most companies who report these measures do so elsewhere in the financial
statements. The range of national trends was even stronger here. There were no companies in
the Netherlands that reported these measures in the income statement, and very few in the UK,
but a third of companies in Italy and Denmark did so.
Belgium
Denmark
France
Germany
Italy*
Netherlands
Spain*
UK
0 5 10 15 20 25 30 35
%
EBITDA and similar measures disclosed on the face of the income statement – by country
Base: 250 companies *Small sample size
10% of companies report
EBITDA in a single column
on the face of the income
statement
8
Industry variations
An analysis of the use of EBITDA and similar measures across industries in the larger capital
markets, also found significant differences between industries. Entertainment, media and
information/communications companies are most likely to report these measures, followed
by companies operating in the industrial and consumer services sectors, whereas financial
services and real estate companies rarely report such additional measures. However, the
proportion of each industry reporting these measures was almost the same under IFRS as
it was in 2004 under national GAAP, which is consistent with the territory analysis.
This consistency in the use of non-GAAP measures overtime will have helped stakeholders
to adjust to the major change in underlying data that has come with the move to IFRS. Even
though the foundations of the measures are different – for example, earnings are measured in
a different way – investors can compare and contrast the old measures with the new because
companies are providing familiar captions for them.
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
Production/construction
Retail/wholesale
Services
Energy, utilities and mining
Financial services
Real estate
Entertainment & media
Infocom
Technology
0 10 20 30 40 50 60 70 80
%
EBITDA and similar measures in the financial statements as a whole – by industry
Base: 1,300 companies in 2005
70% of information/
communications
companies report
EBITDA or similar
measures in their
financial statements
9
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
Results excluding certain non-recurring items
Companies used a variety of ways to present income measures that exclude certain non-
recurring items in the financial statements. We therefore investigated some of the different
terms companies are using and the pattern of use in the largest capital markets.
Terms companies use for income measures excluding certain non-recurring items
We found differences in the way that income measures excluding non-recurring items are
identified and presented between countries. Overall in 2005, only 12% of German companies
reported one or more of the alternative measures excluding non-recurring items, while almost
four times as many companies reported one or more of these measures in France (45%) and
the UK (47%).
There was also a shift in the popularity of certain terms between 2004 and 2005, but overall
use of these measures increased only slightly from 32% of our total sample reporting one or
more of these alternative performance measures in 2004, to 34% in 2005.
1. Result excluding exceptional items
2. Result before non-recurring items
3. Result before significant items
4. Result before special items
5. Result before specific items
6. Normalised result
7. Underlying result
8. Current operating result
1. Result excluding exceptional items
2. Result before non-recurring items
3. Result before significant items
4. Result before special items
5. Result before specific items
6. Normalised result
7. Underlying result
8. Current operating result
Overall use of these
measures was almost
four times higher in
France and the UK
than in Germany
0
10 20 30 40 50
Results excluding
exceptional items
Result before
non-recurring items
Current operating
income
Underlying profit
France
Germany
UK
France
Germany
UK
France
Germany
UK
France
Germany
UK
%
2005 2004
Use of income measures excluding certain non-recurring items by territory
Base: 2,800 companies (1,500 in 2004; 1,300 in 2005)
10
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
These results per country indicate an inverse relationship between companies reporting results
that exclude depreciation and amortisation (EBITDA and similar measures see pages 6-8), and
those reporting results that exclude non-recurring items (see chart on page 9). For example, a
large percentage of German companies and a low percentage of UK companies report EBITDA
and similar measures, but it is the other way round for results excluding non-recurring items.
Exceptional items. The chart (previous page) shows a decrease in the use of the expression
‘exceptional item’ – one of the terms used to identify non-recurring items – between 2004 and
2005. In France instances fell from 15% to 6%; and in the UK from 41% to 31%.
Result before non-recurring items. A growing number of companies use the term ‘result
before non-recurring items’ or ‘recurring result’, especially in France. Over a quarter of French
companies used this terminology last year – practices have undoubtedly been influenced by
the French national standard setter’s recommendation to separately report certain items.
Current operating profit or income. In addition to ‘results before non-recurring items’, we
found a significant increase (from 5% to 15%) in the use of ‘current operating profit or income’
in France. This is in line with a recommendation by the French standard setter, the Conseil
National de la Comptabilité (CNC), which called for a subtotal ‘Résultat opérationnel courant’
(often translated as current operating income) in the income statement under IFRS.
This performance measure is not used (or is very rarely used) in Germany and the UK.
Underlying earnings/profit. In the UK, this measure gained ground as an indicator of
recurring income (up from 12% in 2004 to 18% in 2005). This offsets the decrease in the
use of ‘results excluding exceptional items’. French and German companies use this
terminology much less often.
When we focused on just the income statements of 250 companies in eight countries we
confirmed that companies across Europe are using a range of different non-GAAP measures
before non-recurring items and that there are territory rather than pan-European trends. From
the Netherlands and Belgium, for example, no companies in our sample reported measures
before non-recurring items as a subtotal in a row in the income statement, whereas Spain and
Denmark were around the 10% mark.
The move to IFRS, along with pronouncements from standard setters or regulators, have
precipitated some changes in the reporting of these measures between 2004 and 2005, although
in most cases the changes are not dramatic. This may be part of a shift in management
strategy to strengthen communications to stakeholders at a time when the required GAAP
information has changed.
Analysts and investors agree that they gain valuable insight from reporting of these measures.
However, the variety of terminology raises the question of whether the widespread use of
different performance measures that exclude non-recurring items improves users’ understanding
of the business, or whether the lack of consistency and comparability is confusing. Does
underlying profit mean the same as profit before exceptional items or current operating income?
Does underlying profit for one company even mean the same (conceptually) as underlying
profit for another company?
By clarifying these points – perhaps together with industry peers – companies have an
opportunity to further improve their dialogue with stakeholders.
There is an inverse
relationship between
companies reporting
EBITDA and similar
measures and those
reporting results excluding
non-recurring items
The variety of terminology
raises the question of
whether the widespread
use of different income
measures improves
users’ understanding of
the business
11
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
Focus on the income statement
Having established that companies are using a variety of non-GAAP measures (EBITDA-type
and results before non-recurring items) in their financial statements to communicate with
investors, we had a closer look at the amount of information they are choosing to include on
the face of the income statement, the presentation formats they use, and the level of comparability
between companies.
How many line items do companies report?
We first looked at the number of line items management has chosen to include on the face
of the income statement and found that this varied between eight and 48. The latter is a very
considerable amount of information when you consider that IFRS requires only six line items and
two of these may not be relevant to all companies (joint ventures and discontinued operations).
See Appendix 1.
However, there was some agreement about the appropriate quantity of information – the majority
(59%) of companies reported between 15 and 20 line items and only a minority reported less
than 10 (2%) or more than 20 (14%) line items.
How does this vary by territory?
We also looked at how this varied by territory (see chart below) and found that the average
number and of line items for each territory is quite similar, even though the maximum number
varies considerably.
The number of
line items on the
face of the income
statement varied
between 8 and 48
Belgium
Denmark
France
Germany
Italy*
Netherlands
Spain*
UK
Minimum number of line
items (incl subtotals)
Average number of line
items (incl subtotals)
Maximum number of line
items (incl subtotals)
0 10 20 30 40 50
Number of line items in the income statement
Base: 250 income statements * small sample size
12
How many income measures?
Next we examined the number of income measures included in those line items. By income
measures we mean the subtotals showing revenues plus or minus defined items. IFRS only
requires separate presentation of one income measure – net profit or loss – but companies
in our sample reported between two and eight. The most frequently used headings for these
on the face of the income statement were:
• Net profit/loss
• Result before income taxes
• Operating profit
• Gross margin
• Result from continuing operations
• EBIT
• Operating profit before exceptional items
• EBITDA
The number of
performance
measures varied
between two
and eight
There is no right or wrong about the amount of non-GAAP information that can be included
on the face of the income statement, provided that the data is clear and does not mask the
IFRS amounts. The considerable variations between companies indicate that management is
making decisions based on the nature and complexity of their specific business as well as
the need to be consistent with traditional practices during the change to IFRS.
Although some non-GAAP information on the face of the income statement will usually be
appreciated by investors if it gives additional perspectives, the law of diminishing returns
suggests that there is a point beyond which adding information makes reporting too complex
and starts to obscure the business outcomes, rather than provide insight.
Companies and investors agree that this is a useful measure to report. In interviews with
analysts and other users held by the US Financial Accounting Standards Board (FASB),
many analysts indicated that operating profit and EBIT are among the key metrics they use
to assess a company’s performance. The FASB reported that many, if not most, analysts
expressed a preference for classifying items as operating/non-operating but there was no
clear consensus on the definition or underlying notion of ‘operating’.
Going forward, this is an area where a more comparable approach internationally would be
appreciated by analysts and other users.
Operating profit and EBIT in the income statement
There is no requirement in IFRS to report an operating profit amount. But if one is given, the
standards require all income and costs related to operations to be included. For companies that
do not have associates or discontinued operations, operating profit is commonly put before
interest and taxes so we have looked at these categories of supplementary data together.
In total 96% of the companies in our sample reported either operating profit (85%) or ‘earnings
before interest and taxes’ (EBIT). Such consistent use of these measures across all European
companies is clearly helpful for investors. However, the numbers may not be as comparable
as they seem; we found that some companies use different definitions of operating profit.
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
96% of companies
reported operating
profit or EBIT on
the face of the
income statement
13
Visual presentation of results on the face of the income statement
We also investigated whether companies’ visual presentation of non-GAAP performance
measures on the face of the income statement was comparable under IFRS or whether
companies have tended to stick to previous national trends.
We found clear national trends in the use of columns and boxes – their use markedly higher
in the UK than elsewhere. The UK national standard FRS 3, Reporting Financial Performance,
required separate columns in limited circumstances (for discontinuing operations and continuing
operations) and this seems to have encouraged UK companies to use additional columns or
sub-analyses (including boxes) to present further analyses of their results. UK companies
have carried over these presentation formats to IFRS reporting.
Use of columns
Almost 25% of the UK companies in our sample presented separate columns on the face of
the income statement to highlight specific items (see first chart on the next page). This way
of presenting items on the income statement is much less widespread in the other European
countries and virtually non-existent in some. Most companies that used separate columns did
so to separately present exceptional items (66%) and discontinued operations (26%).
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
We found clear national
trends in the use of
columns and boxes
Example of boxes on the face of the income statement
Operating profit
Existing operations 57.0 54.2
Acquisitions 3.3 1.3
Share of results of associates 0.7 –
Operating profit – continuing operations 61.0
55.5
Operating profit prior to amortisation and impairment
67.0 55.5
Amortisation of acquired intangible fixed assets (0.2) –
Impairment of goodwill (5.8) –
Operating profit – continuing operations 61.0
55.5
Investment income
5.2 4.7
Finance costs (13.5) (13.5)
Profit before taxation 52.7
46.7
Example of additional columns on the face of the income statement
Consolidated income statement
x € million 2005
result before exceptional total
exceptional items
items (8)
net sales continuing operations 8,012 – 8,012
net sales discontinued operations 183 – 183
total net sales 8,195 – 8,195
other operating income (4) 223 59 282
own work capitalized 8,418 59 8,477
47 – 47
14
Use of boxes
The use of separate sub-analyses and boxes on the face of the income statement also
varied by country, as you can see from the chart below. Again it is more common in the UK
than any other country. This style of presentation was mainly used to separately present
depreciation and amortisation (36%) and exceptional items (25%, of which 16% related to
restructuring charges).
There is an interesting distinction, however, between the use of boxes in the UK and in other
countries. In the UK, boxes tends to be a line around items in the main part of the income
statement. In Belgium, France and the Netherlands, however, the boxes or sub-analysis are
almost always presented below the main part of the income statement, which is in line with the
recommended practices outlined in Report Leadership (see Appendix 3).
Belgium
France
Netherlands
UK
0 5 10 15 20 25
%
Separate columns on the face of the income statement – by country
Note: No companies in Germany, Denmark, Spain and Italy used separate columns on the face of the income statement
Base: 250 companies
Belgium
France
Netherlands
UK
0 5 10 15 20%
Boxes and sub-analysis on the face of the income statement – by country
Note: No companies in Germany, Denmark, Spain and Italy used separate boxes on the face of the income statement
Base: 250 companies
The fact that income statement presentation under IFRS is similar to previous practices
under national GAAP indicates that in the first year of IFRS reporting management was keen
for the look and feel of their income statement to be consistent over time and therefore
easily recognisable to investors. The findings also demonstrate the influence of national
regulators, which currently have slightly different views on presentation (see page 1).
Survey of IFRS financial statements: presentation of income
Main findings of the research
PricewaterhouseCoopers
15
Survey of IFRS financial statements: presentation of income
Appendices
PricewaterhouseCoopers
Appendix 2
Our experience with clients and observations during this research have highlighted several
items where continuing small improvements can be made to IFRS reports.
• Minority interests: Under many local GAAPs and a previous version of IAS 1, companies
often presented minority interests as a charge in arriving at profit or loss for the period in the
income statement. Watch out for today’s IFRS requirements that require minorities to be dealt
with as an allocation of profit or loss.
• Gross margin/profit: An entity can choose to present the analysis of expenses either by
nature of expenses or their function within the entity, whichever provides information that
is reliable and more relevant. When you present the expenses by nature, there is a need
to allocate all relevant expenses to cost of sales and not to use a mixture of the two
presentation formats.
• Operating income: IFRS allows disclosure of operating activities, or similar line item, and
many companies do so. However, if a company decides to present such a line item it is
important to ensure that all operating items are included in this result.
• Sub-total titles: The inclusion of additional subtotals is allowed under IFRS. It is important,
however, to make sure that the headings reliably explain the content.
• Alternative earnings per share: Some companies have traditionally reported alternative
earnings per share on the face of the income statement without full disclosures in the notes.
Remember that IAS 33, Earnings Per Share, requires alternative earnings per share to be
presented and reconciled in the notes to the financial statements.
Tips for the next reporting period
Appendix 1
IFRS does not prescribe a detailed format for the presentation of the income statement, although
many national standards that were previously applied did provide formats. IAS 1, Presentation of
Financial Statements, only requires that the income statement contains the following line items:
(a) revenue
(b) finance costs
(c) share of the profit or loss of associates and joint ventures accounted for using the equity method
(d) tax expense
(e) a single amount comprising the total of (i) the post-tax profit or loss of discontinued operations
and (ii) the post-tax gain or loss recognised on the measurement to fair value less costs to
sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation
(f) profit or loss
IFRS also states that additional line items, headings and subtotals shall be presented on the
face of the income statement when such presentation is relevant to an understanding of the
entity’s financial performance. This is supplemented with two example formats and one restriction:
an entity shall not present any items of income and expense as extraordinary items, either on
the face of the income statement or in the notes.
Income statement requirements under IFRS
16
Survey of IFRS financial statements: presentation of income
Appendices
PricewaterhouseCoopers
Appendix 3
Non-GAAP measures presented in the income statement
The example below illustrates a good way of reporting non-GAAP measures in the income statement,
as recommended by Report Leadership – a multi-stakeholder group, including CIMA,
PricewaterhouseCoopers, Radley Yeldar and Tomkins, which aims to challenge established
thinking on corporate reporting. www.reportleadership.com
For an analysis of
what is driving
revenue growth
see page 42
2007 2006 Percentage
Note £’000 £’000 change
Revenue 209,891 173,843 21%
Cost of sales 3 (115,433) (94,742)
Gross profit 94,458 79,101 19%
Gross margin 45% 46%
Administration and distribution expenses 3 (67,405) (55,790)
350,72 tiforp gnitarepO 23,311 16%
Operating margin 13% 13%
5stsoc ecnaniF (1,049) (1,404)
5emocni ecnaniF 1 1
500,62xat erofeb tiforP 21,908 19%
6esnepxe xat emocnI (7,521) (6,333)
484,81raey eht rof tiforP 15,575 19%
After-tax profit percentage 9% 9%
Attributable to:
Equity holders of the parent 18,484 15,757
Earnings per share
– basic for profit for the year (pence/share) 231.05 210.47
– diluted for profit for the year (pence/share) 231.05 210.47
Proposed dividends (pence/share) 75.00 65.00
2007 2006
EBITDA: Note £’000 £’000
Operating profit 27,053 23,311
8 noitasitroma dna noitaicerpeD :kcab ddA 6,088 5,489
EBITDA 33,141 28,800
Percentage change 15%
Earnings per share (EPS) is calculated as follows: 2007 2006
Profit attributed to the equity holders (£) 18,484,000 15,575,000
Divided by: Average shares in issue in period 8,000,000 7,400,000
EPS (pence/share) 231.05 210.47
NON-GAAP
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