Comment: financial key performance indicators

In our response to whether the FASB should adopt a project to permit or require entities to include financial key performance indicators (KPIs) in their audited financial statements, we indicated that we do not believe this project should currently be a high priority for the FASB for the following reasons:

• The FASB is currently gathering feedback on future projects, some of which may be more compelling than financial KPIs;
• The Board has recently issued a number of disclosure and disaggregation standards that will take effect over the next several years and will change the mix of information available to investors; and
• The IASB recently issued a new standard that imposes requirements similar to one of the two approaches that the FASB proposed for accounting for KPIs.

We believe that the FASB and all stakeholders would benefit from observing how these developments impact financial statement users’ needs before deciding on whether a project on KPIs is warranted.

If the FASB were to add a project on KPIs to the technical agenda, we support the first approach proposed, which would define specific financial KPIs to include in the financial statements. We recommended that the FASB initially define the two most prevalent financial KPIs in practice: EBITDA and free cash flow. The second proposed approach, requiring or permitting disclosure of financial KPIs that an entity discloses outside the financial statements, would allow entities to tailor KPIs that are most relevant to their specific financial statement users, but our understanding is that users are more concerned about the comparability, consistency, and reliability of certain core financial KPIs, such as EBITDA and free cash flow.  As such, we believe the first approach is more responsive to user needs. 

To read our comments in full, download our letter.