Disclosure of Alternative Performance Measures in Management's Report: A True and Fair Presentation?

Sebastian Wandahl Stenshøj & Casper Gert Munk

Student thesis: Master thesis


This thesis examines the reporting quality of adjusted performance measures reported in management’s reports. As a proxy of quality, we use IASBs fundamental qualitative and enhancing characteristics, which ranks and breaks down quality into subdivisions. The thesis is based on a questionnaire with 32 responses, interviews with two professional equity analysts, a comprehensive analysis of annual reports of 24 companies containing more than 1,000 performance measures, as well as secondary empirical research. We recorded all the performance measures reported by OMX C25-companies listed on NASDAQ Copenhagen and grouped these performance measures as GAAP, non-GAAP and ‘adjusted’ respectively. The reported adjustments were analyzed, in particular, adjustments referred to as ‘Special items’ and ‘Non-recurring’ underwent a thorough investigation. The main conclusion is that the adjusted performance measures reported by the Danish companies only to a low degree meets the requirements of quality that we developed based on the IASB Conceptual Framework. We question if the adjusted performance measures reported by the Danish companies provides a true and fair presentation of the financial position and results of these companies. On the contrary, we acknowledge that the qualitative characteristics are broadly defined by IASB and not specified in Danish legislation, which makes them difficult to apply on alternative performance measures. In addition, we find that the quality of alternative performance measures reported by companies subject to the ESMA Guidelines on Alternative Performance Measures is considerably higher than the one achieved by the Danish companies. Furthermore, we find that the reporting of alternative performance measures (and their low quality) especially have consequences for private investors and their ability to fully understand the various adjustments used by the companies. However, they still tend to use the reported adjusted earnings in their (simplified) valuation techniques. Nor does the private investors have the same degree of access to the management as professional investors, creating information asymmetry between the two groups of investors. This ultimately results in private investors investing in stocks etc. on a less informed basis.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2019
Number of pages152