Are all non-GAAP disclosures created equal? |
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Authors: | Mollie T Adams Michele D Meckfessel |
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Institution: | 1. Bradley University, 1501 W. Bradley Avenue, Peoria, IL 61625, U.S.A.;2. University of Missouri St. Louis, 1 University Boulevard, St. Louis, MO 63121, U.S.A. |
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Abstract: | Publicly traded companies in the U.S. must prepare financial statements in accordance with the requirements of U.S. Generally Accepted Accounting Principles (U.S. GAAP). However, many companies also report non-GAAP measures—those calculated outside the requirements of U.S. GAAP—in their earnings announcements, annual reports, and SEC filings. The SEC began regulating the release of non-GAAP measures in 2003 and has expressed ongoing concern regarding firms’ disclosure of the same, but the use of non-GAAP measures continued to increase nonetheless. A 2018 Audit Analytics report found that in 2006, 76% of SEC filers included non-GAAP measures, but in 2017 that percentage rose to 96%. This installment of Accounting Matters provides an overview of the SEC regulations regarding non-GAAP measures, examines how investors react to non-GAAP disclosures, and provides guidance regarding how companies can avoid receiving a non-GAAP disclosure comment letter from the SEC. |
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Keywords: | Earnings announcements SEC filings Non-GAAP measures SEC comment letters Disclosure |
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