To GAAP or non-GAAP? The SEC is watching

Start adding items to your reading lists:
or
Save this item to:
This item has been saved to your reading list.

Understanding the use of non-GAAP financial measures continues to be an area of focus for the SEC

The SEC continues to scrutinize the use of non-GAAP financial measures. Audit committees need to be informed and know what questions to ask management.

Why are non-GAAP measures relevant?

More companies now use non-GAAP measures, and the majority of the time, their non-GAAP results are better than those reported under GAAP. The last time the SEC updated its interpretive guidance by releasing additional Compliance & Disclosure Interpretations (C&DIs) was in May 2016. Since those C&DIs were released, the SEC has reiterated their views on non-GAAP.

What are the rules around non-GAAP information?

The disclosure requirements vary based on the applicable regulation. Regardless of the source, all of the governing regulations share an overarching principle that non-GAAP information cannot be misleading. Companies may also be subject to express prohibitions depending on which regulation governs a particular non-GAAP disclosure.

Can the non-GAAP adjustments be trusted?

The use of GAAP provides uniformity in how companies report their financial performance. But most S&P 500 companies choose to report non-GAAP metrics in addition to GAAP measures. If done appropriately, non-GAAP measures can provide insights into a company’s business, past performance, and its potential prospects.

Where does the audit committee fit in?

Acting as a bridge between management and stakeholders, the audit committee is well positioned to exercise healthy oversight by asking the right questions. The audit committee has a significant role in overseeing the presentation of non-GAAP measures.

Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.

Contact us

Paula Loop

Paula Loop

Governance Insights Center Leader, PwC US

Stephen G. Parker

Stephen G. Parker

Partner, Governance Insights Center, PwC US

Paul DeNicola

Paul DeNicola

Principal, Governance Insights Center, PwC US

Barbara Berlin

Barbara Berlin

Managing Director, Governance Insights Center, PwC US

Hide