Perspectives

Non-GAAP financial measures and metrics

On the Radar: SEC’s rules for non-GAAP vs. GAAP

Is there more to your company’s performance than what GAAP financial reporting reveals? Non-GAAP measures and metrics can provide further perspective. But be aware of the SEC’s rules and interpretations for non-GAAP vs. GAAP information.

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Areas of SEC scrutiny

Non-GAAP financial measures and metrics are used commonly by both existing registrants and companies seeking to gain access to the US capital markets through an initial public offering. Many registrants assert that non-GAAP measures are meaningful and provide valuable insight into the information that management considers important in running the business.

The SEC monitors non-GAAP measures and metrics vigilantly. Non-GAAP reporting, particularly related to misleading measures and prominence, is consistently among the top areas of SEC comments, and this trend is expected to continue. Registrants should therefore remain mindful of key topics of focus, including whether:

In December 2022, in response to numerous comments and questions from issuers, the SEC staff issued new and updated interpretive guidance on how it evaluates non-GAAP measures. This updated guidance (1) provides greater insight into, and examples of, misleading measures and adjustments and (2) clarifies when a non-GAAP measure is more prominent than a GAAP measure.

In addition, given the ongoing uncertainty associated with the unprecedented nature of COVID-19, the Russia-Ukraine war, and related economic conditions, companies may be faced with a number of financial reporting and disclosure challenges that result in the recognition of infrequent or unusual gains, charges, or losses and may consider non-GAAP adjustments for these items. In its disclosure guidance issued at the onset of the global pandemic, the SEC staff reminded registrants that the SEC’s non-GAAP rules also apply to adjustments made for the impact of COVID-19. The SEC has also issued a sample letter to companies regarding disclosures about the financial impact of the Russia-Ukraine war and related supply-chain disruptions. The letter included examples of SEC comments that issuers can consider when evaluating potential non-GAAP adjustments.

On the Radar: Non-GAAP Financial Measures and Metrics

A breakdown of key guidance

Continue your non-GAAP financial measures and metrics learning

Deloitte’s Roadmap Non-GAAP financial measures and metrics combines the SEC’s guidance on non-GAAP measures with Deloitte’s interpretations and examples in a comprehensive, reader-friendly format.

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