The Expanding Use of Non-GAAP Financial Measures

Understanding their Utility and Regulatory Limitations

Seanna Asper, CPA, Chris McCoy, CPA, and Gary K. Taylor, PhD

In BriefThere is a long history of businesses reporting non-GAAP financial measures, often to highlight a change in operating structure or illuminate the impact of a merger or acquisition. But since the 1990s, companies have increasingly used non-GAAP financial measures as a way to adjust earnings in ways that may help investors understand their core business. A lack of guidance, however, has opened the door to potentially misleading financial reporting, leading the SEC to get more involved. The authors review the current problems with non-GAAP financial measures so that auditors can help ensure that management not run afoul of regulatory scrutiny.