Roadmap for Audit Committees: non-GAAP
Investors have confidence in financial statements in part because of their consistency, reliability, relevance, and comparability. US Generally Accepted Accounting Principles (GAAP) provide the framework that supports these characteristics; however, investors also value certain non-GAAP financial measures and believe that, when presented appropriately, non-GAAP financial measures can provide additional insight into a company’s results of operations, financial position, or liquidity.
Although long the subject of debate—even controversy— the use of non-GAAP financial measures has been a top focus of securities regulators over the years. The US Securities and Exchange Commission (SEC) staff issued guidance specific to the presentation of non-GAAP financial measures in filings and other company communications to investors. Non-GAAP financial measures are explicitly defined by SEC regulations, and not all non-GAAP measures presented by companies will meet the SEC definition of a non-GAAP financial measure. At the December 2017 AICPA Conference on Current SEC and PCAOB Developments, SEC staff members indicated that the SEC was seeing improvements in the presentation of non-GAAP financial measures but urged companies to continue their improvement efforts.
Non-GAAP measures that are transparent, calculated consistently, and comparable to measures disclosed by other companies can help provide users with useful information.4 Consistent with its mission to convene and collaborate with stakeholders to advance the discussion of critical issues, the Center for Audit Quality (CAQ) has fostered dialogue around this critical topic.5 This publication summarizes common themes that emerged from a series of 2017 roundtable discussions regarding the presentation and use of non-GAAP measures—and the opportunities to enhance trust and confidence in this information.
This “roadmap” will support audit committees in advancing their oversight of and involvement with non-GAAP measures. Enhancing audit committee oversight and involvement will lead to more transparency and consistency and that will promote a greater understanding of all stakeholders’ roles relative to non-GAAP measures.
