As companies increase their use of non-GAAP measures, Securities and Exchange Commission (“SEC”) chairman Jay Clayton has urged public companies to provide metrics that are consistent with business operations. The request comes as SEC officials express concern over misleading non-GAAP metrics that cause companies to portray a more favorable financial performance than GAAP metrics do. In turn, the deceiving numbers can drive up stock prices.
Discussing the issue at a December 10 conference in Washington, D.C., Clayton called for similar consistency in reporting non-GAAP metrics and key performance indicators as expected in GAAP metrics. SEC chief accountant Wesley Bricker agreed with Clayton, stating that investors appreciate non-GAAP measures but want quality information. Bricker noted that company policies would do well in handling situations where a change in presentation policy occurs or when a company identifies a mistake in a previous presentation. Clayton piggybacked Bricker’s comments by adding the SEC needs to ensure that a change in numbers are consistent with how management operates business and evaluates business performance.