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SEC Hints at Crackdown on Non-GAAP Reporting

By:
Chris Gaetano
Published Date:
Mar 17, 2016

'MIND THE GAP 5023794412' by http://www.cgpgrey.com. Licensed under CC BY 2.0 via Wikimedia CommonsSecurities and Exchange Commission (SEC) Chair Mary Jo White said she is considering whether to curb the use of non-GAAP financial reporting, according to The Wall Street Journal. Chair White made her remarks in a speech on Wednesday before the U.S. Chamber of Commerce. During the speech, Chair White said that CFOs and investor relations executives preferred non-GAAP measurements "because they tell a better story," but the SEC was concerned about their use.  

The SEC currently allows filers to use alternative measurements in their earnings reports as long as they don't obscure the official GAAP figures. These alternative figures are usually higher than the official figures, according to the Journal, as they exclude losses required to be disclosed in GAAP. In a previous speech before the AICPA, Chair White said these measures are used extensively and can be a source of confusion for investors. 

 "Non-GAAP measures are allowed in order to convey information to investors that the issuer believes is relevant and useful in understanding its performance.  By some indications, such as analyst coverage and press commentary, non-GAAP measures are used extensively and, in some instances, may be a source of confusion," said White during the AICPA speech.