The International Federation of Accountants’ Professional Accountants in Business Committee has issued proposed guidance on supplementary financial measures such as EBITDA, free cash flow and underlying profit.

The proposed International Good Practice Guidance, “Developing and Reporting Supplementary Financial Measures,” seeks to establish a benchmark for the use of supplementary financial measures to improve the understanding of an organization’s performance among management, investors and other stakeholders.

The proposed guidance provides principles for the kinds of qualities that the supplementary financial measures should have, in addition to the disclosures that should accompany them if they are reported externally. The guidance recommends that accountants should consider various attributes when developing and reporting supplementary financial measures. The guidance also provides a number of tips for disclosure of supplementary financial measures.

The guidance is meant for all organizations that want to use supplementary financial measures, regardless of their size or structure, and whether they are private or public. “High-quality information is crucial for well-informed decision making about an organization, both internally and externally,” said PAIB Committee chair Charles Tilley in a statement. “Well-developed supplementary financial measures increase users’ understanding of an organization and its performance.”

Supporting the profession and accountants in business is a key objective of the PAIB Committee. This type of principles-based guidance is an important aspect of achieving that objective.

“This guidance will help professional accountants in business and their organizations improve communications with their stakeholders,” said Karyn Brooks, who chairs the PAIB Committee’s Business Reporting Task Force. “It will enable organizations to provide their stakeholders with improved financial and non-financial measures.”

The PAIB Committee is encouraging accountants, their organizations and other interested parties to respond to the proposed guidance to help improve its applicability in organizations of all sizes. To access the exposure draft and submit a comment, visit the IFAC Web site. Comments on the exposure draft are requested by May 26, 2014.

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