SEC Officials Want Consistent Non-GAAP Metrics
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. Read More.
SEC’s Corp Fin Revises Guidance on Non-GAAP Measures
The Securities and Exchange Commission’s (“SEC”) Division of Corporation Finance (“Corp Fin”) recently updated its Compliance and Disclosure Interpretation (“C&DI”), Non-GAAP Financial Measures . The revised C&DI features Corp Fin staff interpretations of the provisions for using non-GAAP financial measures. It also adds Questions 101.02 and 101.03, which includes guidance related to business combination transactions, including information about offering non-GAAP financial measures in specific forecasts. Visit SEC.gov to see the updated C&DI.
CAQ Report to Help Audit Committees with Non-GAAP Oversight
In its new report, Non-GAAP Measures: A Roadmap for Audit Committees , the Center for Audit Quality (“CAQ”) offers oversight guidance to audit committees concerning financial measures outside of U.S. Generally Accepted Accounting Principles (“GAAP”). The CAQ advises audit committees to take the following actions with companies: Evaluate whether the disclosed non-GAAP measures and related information support a company’s general strategy and performance. Decide whether management’s internal policy features guidelines for defining how non-GAAP measures are created, calculated, and disclosed. Talk with management about how a company decides to change non-GAAP measures it discloses and its rationale for making such changes. Ask a company to compare its. Read More.
CAQ Issues Auditing Request for Proposals for 2018
The Center for Audit Quality (“CAQ”) has issued a request for proposals (“RFPs”) to finance auditing projects for academic research. This marks the tenth annual request by the CAQ, which is asking for applicants to submit RFPs concerning critical policy issues and topics of interest such as auditor risk assessment, cybersecurity, non-GAAP measures, and professional skepticism. Proposals must be submitted via the CAQ online submission form by March 15, 2018. The CAQ’s Research Advisory Board will review all proposals, and the CAQ will award grants to the selected projects in June 2018.
Non-GAAP Guidance Updated by Corp Fin Staff
Staff members of the Securities and Exchange Commission’s Division of Corporation Finance (“Corp Fin”) have revised the Compliance and Disclosure Interpretation, Non-GAAP Financial Measures . The update includes guidance concerning business combination transactions and adds the following two questions: Are financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction non-GAAP financial measures? Does the exemption from Regulation G and Item 10(e) of Regulation S-K for non-GAAP financial measures disclosed in communications relating to a business combination transaction extend to the same non-GAAP financial measures disclosed in registration statements, proxy statements and tender offer statements? The Compliance and. Read More.
SEC Chief Accountant Credits Interpretive Guidance for Curbed Misuse of Non-GAAP Measures
Securities and Exchange Commission (“SEC”) Chief Accountant Wesley Bricker is crediting the reduced misuse of non-GAAP measures to the Compliance and Disclosure Interpretations (“C&Dis”) issued in May 2016. Bricker said the interpretive guidance for Regulation G, regulation covering non-GAAP financial information, has helped companies become better disciplined and disclose to investors the use of non-GAAP measurements. Bricker spoke on the C&DIs in October at the National Association of Corporate Directors’ Global Board Leader’s Summit. He remarked that since the C&DIs were issued, public companies have quit highlighting non-GAAP measures more predominately than their audited results. Companies have also established policies. Read More.