Discussion Paper Series 2019-E-20

The Disclosure of Non-GAAP Performance Measures and the Adoption of IFRS: Evidence from Japanese Firms' Experience

Yuta Shibasaki, Chikara Toyokura

We investigate whether and how Japanese firms' non-GAAP disclosure practices change when they adopt International Financial Reporting Standards (IFRS). We find that the likelihood that firms disclose non-GAAP performance measures outside financial statements increases after they have adopted IFRS. This is consistent with the view that the proliferation of non-GAAP performance measures is, in part, attributable to the nature of the current IFRS presentation requirements for financial statements. We also show that the exclusion of non-recurring items to arrive at non-GAAP performance measures becomes more common only after firms have adopted IFRS. This finding indicates that many managers regard separating out unusual or infrequently occurring items as important. The practice corresponds to financial statement users' calls for such separation. We also show how the proposed introduction of several subtotals in statements of financial performance by the International Accounting Standards Board (IASB) under the Primary Financial Statements project will improve the comparability and usefulness of financial statements of Japanese firms that have adopted IFRS. These results provide important empirical evidence at a time when the IASB is developing new presentation requirements for statements of financial performance.

Keywords: Non-GAAP performance measures; IFRS; Primary Financial Statements project


Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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