No more non-GAAP 'window dressing', say investors

19 Aug 2013

The German investment community has voiced concern over the way some companies use non-GA AP measures as financial 'window dressing'.

The DVFA (Deutsche Vereinigung für Finanzenalayse und Asset Management), PwC and the University of Hamburg have published the results of their research into investor views on non-GA AP earnings adjustments. The findings reflect the unease in the German investment community around the use of non-GA AP adjustments as either an ancillary accounting regime or a means by which companies ‘finesse’ their numbers, taking advantage of techniques that are not defined under GA AP.

Most investors broadly like non-GA AP measures, to the extent that they aid analysis and give insight into the underlying performance of a company. But there is a concern that inconsistent treatment of adjustments can be used by management to alter the reporting of yearly performance.

Alison Thomas, PwC director and former investor, remarked: “The conclusions mirror the message we have heard for many years from our engagement with the global investment community: non-GA AP adjustments should enhance an investor’s ability to properly assess risk and performance, not act as an instrument for spin.”

The report found that investors want clarity and consistency around the adjustments made to get from GA AP to non-GA AP. They also want those adjustments to be balanced and really relevant to performance.

The survey also showed that presentation and historic data are important too, with investors recommending that companies use bridge charts to reconcile back to GA AP and also provide at least three years of comparative, consistently defined data.

The overall aim of the guidelines is to ensure non-GA AP performance measures are clearly defined and kept as consistent as possible over time, to enhance the transparency and comparability of company reporting.