An Experimental Examination of the IFRS 18 Requirement to Relocate Non‐ GAAP Financial Measures to the Audited Notes of the Financial Statements

ABSTRACT

Effective January 1, 2027, IFRS 18 requires non‐GAAP financial measures (e.g., management‐defined performance measures) to be relocated from the unaudited management discussion and analysis (MD&A) to the audited notes of the financial statements. This change simultaneously alters the location of non‐GAAP financial measures (i.e., from the unaudited MD&A to the audited notes of the financial statements) and extends the requirement for audit of non‐GAAP financial measures. We use an experiment to examine the effect of this new accounting standard on users with varying levels of financial expertise. We find that reliance varies with the level of financial expertise such that “lower‐expertise” users rely less on non‐GAAP financial measures when they are relocated to the audited notes of the financial statements, whereas “higher‐expertise” users' reliance does not significantly change. Our findings suggest that the decreased reliance on non‐GAAP financial measures by lower‐expertise users is consistent with the lower availability of non‐GAAP financial measures and higher information processing costs when these are relocated to the audited notes of the financial statements. However, this does not appear to similarly influence higher‐expertise users. Implications for accounting standard setters, regulators, and research are presented in the paper.