AS COMPANIES prepare to reveal their financial results in the reporting season that kicks off today, the corporate regulator will be watching for those trying to hide bad news behind fuzzy terminology.
More companies are using phrases such as ''underlying profit'', ''normalised profit'' or ''profit before significant items'' to report their performance, especially in non-audited market announcements, instead of sticking to methods set out in the International Financial Reporting Standards (IFRS).
Such terms allow companies to strip out costs that they say are extraordinary or one-offs, such as asset write-downs and restructures, which can drag into a loss what would otherwise have been a profit.
New Australian Securities and Investments Commission guidelines released in December don't ban the use of such descriptions, but they do warn that they can mislead or confuse investors if not properly explained.
Doug Niven, leader of financial reporting and audit at ASIC, said companies should be reviewing how they disclose information.
ASIC would be monitoring the issue, which was an ''ongoing focus'' for the agency, he said.
A KPMG report released in December found that most ASX100 companies would need to review their reporting habits following ASIC's new guide - with 82 releasing an underlying profit figure last year along with an IFRS-mandated statutory figure.
Most companies do not use non-IFRS figures in their audited financial statements but may use them in market announcements, directors' reports and investor briefings.
ASIC has acknowledged that such terms can be useful, especially for market analysts. The Australian Institute of Company Directors has argued that most companies use them in ''good faith''.
Use of such terms rose after the global financial crisis, when write-downs and restructures became more common. The new guidelines say companies should give equal or greater prominence to IFRS-approved information to explain the use of non-IFRS descriptions and not to use such phrases to hide bad news.
Last year, an ASIC review of June 30 financial reports, market announcements, investor and analyst presentations and media releases of 120 listed companies found more than half had published a non-IFRS profit number.
After being contacted by ASIC, some companies removed the non-IFRS numbers from their reports and others changed ''misleading presentations''.
''If you are going to ask someone to describe their own performance - which is what we are doing - they are always going to try to make themselves look better,'' Peter Wells, head of accounting at the University of Technology Sydney, said.
