Tips for avoiding trouble with non-GAAP reporting

By Ken Tysiac

Improper use of non-GAAP measures, which has been an item of scrutiny in public company reporting for years, remains an area of concern for the SEC staff.

"The regulations and guidance over non-GAAP measures have changed very little in recent years, but that's continued to be a popular comment topic," SEC Deputy Chief Accountant Sarah Lowe, CPA, said Tuesday at the AICPA & CIMA Conference on Current SEC and PCAOB Developments.

Lowe said the SEC is encountering problems with the prominence of non-GAAP measures, improper labeling, and presentation of a non-GAAP measure as a metric, or vice versa.


SEC rules require that when an issuer presents a non-GAAP measure, the most directly comparable GAAP measure must be reported with equal or greater prominence.

"However, we continue to see some companies disclose non-GAAP measures more prominently than their GAAP results," Lowe said.

Inappropriate presentations include:

  • Non-GAAP results without any GAAP results;
  • A lengthy discussion of the non-GAAP measure, including charts and graphs, that overshadows the GAAP measurement;
  • Presentation of a full non-GAAP income statement; and
  • Reconciling with a GAAP measure other than the one that is most directly comparable.


Lowe said many companies are now reporting adjusted EBITDA, but there is no consistency in the adjustments and comparability is lost. The SEC staff might not object to this reporting, but it might not be useful to investors.

"I do want to highlight the importance of clearly labeling and describing the non-GAAP adjustments in the measure so an investor is able to compare this similarly titled measure across more than one registrant," she said. "I also want to remind preparers that the additional number of adjustments and lack of consistency across registrants' non-GAAP measures may add complexity for investors."

Metrics vs. non-GAAP measures

The SEC issued guidance in 2020 designed to provide clarity for preparers on reporting KPIs and metrics in management's discussion and analysis (MD&A).

Lowe reminded preparers to review the non-GAAP reporting rules and the SEC's guidance on metrics when preparing their reporting. She urged preparers to make sure that any metrics used in the filings be consistent with other information included in the filings.

"We understand and acknowledge the performance metrics used by management change over time with the evolution of the business," she said. "We just remind you to think comprehensively about the information you're providing inside your filings."

Ken Tysiac ( is the JofA's editorial director.

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