Request useful investor information, advisers told

Investors and financial advisers are being told they should not be afraid to put pressure on companies to get them to report information in a way that is useful to them.

Tuesday, July 18th 2017, 6:00AM

by Susan Edmunds

The Financial Markets Authority has released guidance on how firms, primarily Financial Markets Conduct Act reporting entities, should disclose information that is outside the general accepted accounting practice (GAAP) standards.

That includes things such as alternatives to statutory profit, underlying earnings or normalised profit, to illustrate business performance.

These are described as alternative performance measures (APMs) and presented in market announcements, investor presentations, disclosure documents and other shareholder communication.

The FMA said the measures could give insight into how an entity was performing, the financial conditions it was operating in or its cash flow.

"However, it has the potential to be misleading if inconsistently presented, inadequately defined, not reconciled to the most comparable GAAP financial information and/or used to obscure financial results determined in accordance with GAAP."

The FMA said APMs should not be given more prominence than GAAP measures.

“For information to be helpful to investors, and give them a better understanding of a company’s financial performance, it needs to be disclosed clearly. It should reflect an honest assessment of the performance of the company,” said FMA director of capital markets Garth Stanish.

Chartered Accountants Australia and New Zealand acting reporting leader Zowie Pateman said investors would benefit from the FMA's guide.

“APMs play an important role for entities and investors, by providing industry insights that compliment information produced by accounting standards.”

She said they were most useful to investors when used in conjunction with GAAP information.

“The FMA recognises stakeholders increasing desire for broader corporate reporting, and its guidance provides a framework to enable entities to meet market demand.”

She said investors had a right to demand information that was useful to them, in financial statements.

"They [statements] are prepared for them. They have a right to request they follow the FMA guidelines if they haven't."

She said, although the guidelines were not mandatory, market demand could drive companies to comply.

Tags: Disclosure financial advisers Financial Markets Conduct Act FMA investment