Non-GAAP financial measures and metrics

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 published new and updated C&DIs on how it evaluates non-GAAP measures. This updated guidance provides greater insight into, and examples of, (1) misleading measures and adjustments and (2) non-GAAP measures that may be more prominent than GAAP measures. The topics addressed in the updated guidance continue to be among the non-GAAP matters that the SEC staff comments on most frequently.

In addition, given the ongoing uncertainty associated with macroeconomic events (e.g., the Russia-Ukraine war, geopolitical unrest in the Middle East, and supply-chain disruptions) 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 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. Further, the SEC 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. While the SEC interpretive guidance and sample comments address specific macroeconomic events, registrants should remain mindful that the underlying principles may apply to other circumstances.

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.