Tag: non-GAAP financial measures

SEC staff comment letters regarding non-GAAP financial measures

You might recall that, in 2016 and early 2017, the SEC made a big push—through a series of staff oral admonitions and written guidance, as well as an enforcement action—to require issuers to be more transparent and more consistent in the use of non-GAAP financial measures and to avoid altogether non-GAAP measures that were misleading. For example, companies were advised that they needed to present GAAP measures with equal or greater prominence relative to the non-GAAP measures.  (See, e.g., this PubCo post.)  By early 2017, the SEC staff were apparently sufficiently satisfied (see this PubCo post) with the responses to their campaign that the pendulum swung back, and the relentless finger-wagging by the staff about non-GAAP financial measures appeared to have tailed off.  (See this PubCo post.) But, according to this analysis from Audit Analytics, it wasn’t until this year that the SEC staff’s comments regarding non-GAAP financial measures actually began to decline. 

Are non-GAAP financial measures still problematic?

A couple of years ago, the SEC made a big push—through a series of staff oral admonitions and written guidance, as well as one enforcement action—toward requiring issuers to be more transparent and more consistent in the use of non-GAAP financial measures and to avoid altogether non-GAAP measures that were misleading. For example, companies were advised that they needed to present GAAP measures with equal or greater prominence relative to the non-GAAP measures.  (See, e.g., this PubCo post.) And, as this article revealed, according to Audit Analytics, in 2016, over 25% of the companies in the S&P 500 index had shifted their presentations to put GAAP at the top of their quarterly earnings releases and 81% made GAAP numbers most prominent, compared with only 52% for the prior quarterly earnings releases. (See this PubCo post.)  By the end of 2017, the SEC was apparently sufficiently satisfied with the response that the pendulum had swung back, and there was less staff focus and comment on non-GAAP financial measures.  (See this PubCo post.) But is that really the end of the story? How “good” are the numbers that are fed to investors?

Corp Fin posts two new CDIs regarding non-GAAP financial measures in the M&A context

Corp Fin has posted two new CDIs regarding the use of non-GAAP financial measures in connection with business combinations, summarized below:

Highlights of the 2017 PLI Securities Regulation Institute

Summarized below are some of the highlights of the 2017 PLI Securities Regulation Institute panel discussions with the SEC staff (Michele Anderson, Wesley Bricker, Karen Garnett, William Hinman, Mark Kronforst, Shelley Parratt, Ted Yu), as well as a number of  former staffers and other commentators. Topics included the Congressional and SEC agendas, fresh insights into the shareholder proposal guidance, as well as expectations regarding cybersecurity, conflict minerals, pay ratio disclosure, waivers and many other topics.

Corp Fin posts two new CDIs regarding non-GAAP financial measures in connection with M&A transactions

The SEC has posted two new CDIs regarding the use of non-GAAP financial measures in connection with business combinations, summarized below.

Does it pay to challenge the SEC over non-GAAP financial measures?

by Cydney Posner As discussed in this article, the WSJ engaged Audit Analytics to perform an analysis of SEC comment letters and company responses regarding the use of non-GAAP financial measures. What did they find?  Companies are winning the argument more often than you might think.

Are “other key operating metrics” the new non-GAAP financial measures?

by Cydney Posner As reported by BNA, the top accounting staff at the SEC are quite satisfied with companies’ responses to the SEC’s assault on abuses of non-GAAP financial measures. The staff’s concern was that companies’ reporting was often inappropriately painting, through the use of non-GAAP measures, healthier-than-justified pictures of […]