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Changes for Non-GAAP Measures in Earnings Releases

Posted by Howard Berkenblit on May 20, 2016 at 1:07 PM

The SEC staff has released updated Compliance Disclosure and Interpretations regarding Regulation G/non-GAAP financial measures. Non-GAAP measures have been under attack in recent SEC speeches and media articles and now there are updated parameters surrounding their usage. 

From a practical standpoint, the biggest changes in the CD&Is appear in new question 102.10 –this will impact many companies’ earnings releases due to the parameters it places around ordering, headlines, etc. This CD&I points out that the rules require that when a registrant presents a non-GAAP measure it must present the most directly comparable GAAP measure with equal or greater prominence.  Included among the examples of disclosures that would cause a non-GAAP measure to be more prominent are some practices that are currently quite common, including (1) a non-GAAP measure that precedes the most directly comparable GAAP measure (including in an earnings release headline or caption); (2) omitting comparable GAAP measures from an earnings release headline or caption that includes non-GAAP measures and (3) describing a non-GAAP measure as, for example, "record performance" or "exceptional" without at least an equally prominent descriptive characterization of the comparable GAAP measure. 

Although the CD&Is are technically informal views, not rules, companies can expect the SEC staff to comment on their filings that contain non-GAAP measures if they don’t adhere to the updated guidance.

Topics: SEC, G/non-GAAP, question 102.10, CD&Is

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The SEC Pulse provides updates and commentary from our Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies who trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters.

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