Non-GAAP financial measures remain a top SEC focus, with frequent comment letters and notable enforcement actions. In the accompanying article, we walk through the rules, pitfalls, and best practices companies should know.
Key takeaways:
- The SEC continues to scrutinize non-GAAP financial measures, with frequent comment letters on their use. Principal areas of SEC concern, in order of frequency in recent comment letters, are:
- Potentially misleading non-GAAP financial measures (e.g., excluding normal, recurring operating expenses; individually tailored recognition and measurement methods; and confusing or misleading titles or descriptions);
- Undue prominence of non-GAAP financial measures compared with GAAP measures;
- Insufficient explanation of why the use of a non-GAAP financial measure is helpful to investors;
- Reconciliation to the most directly comparable GAAP measure;
- Distinguishing liquidity versus performance measures; and
- Income tax effects of non-GAAP adjustments.
- Recent enforcement actions highlight the importance of accurate, transparent, and balanced non-GAAP disclosures.
- Audit committees should actively oversee non-GAAP disclosures, ensuring robust internal controls and clear, investor-focused communication.
Read the full article: Guidance on Non-GAAP Financial Measures and SEC Rules.