Non-GAAP measures and other key performance indicators (KPIs) can provide insight into a company’s business, its past performance, and its potential prospects. Recently, non-GAAP measures and other KPIs have attracted headlines noting their increased use, and the growing difference between certain non-GAAP measures and their GAAP counterparts.
To address these concerns head-on, management can act in a manner that builds confidence, in part by avoiding inappropriate use or emphasis of non-GAAP measures and other KPIs. Audit committees may also want to consider their level of oversight with regard to disclosure of non-GAAP measures and other KPIs. Acting as a bridge between management and stakeholders, the audit committee is well-positioned to ask the right questions.
Management and the audit committee are essential to building trust in non-GAAP measures and other KPIs, but they cannot do it alone. Although their roles vary and are more indirect in nature, the SEC, auditors, analysts, investors, advisors, and the financial press all participate in creating an environment in which non-GAAP measures and other KPIs may be useful while not being confusing.
Mind the GAAP! There is a growing dialogue on non-GAAP measures. Hear discussion on some of the history on non-GAAP measures, a recent SEC release and more.
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