Baruch Lev recently reported in his article, “Surprise: Investors Like Non-GAAP Earnings” (Seeking Alpha, Apr. 6, 2017, that his analysis of a sample of S&P 500 companies found that 80% disclosed non-GAAP earnings. Several other sources have set the use of non-GAAP measures by S&P 500 companies at over 90%. David Trainer reports in Forbes (“SEC Starting to Worry About Non-GAAP Earnings,” May 5, 2016, that based on a random sample of 40 S&P companies, 92% reported higher non-GAAP earnings than GAAP numbers.

No professional organization appears to have taken up this issue as yet, and the current state of affairs can be seen in both the controversies and the lack of organized resources. CPAs are in the interesting position of being able to see both investor concerns about misleading presentations and management focus on portraying positive information. Does this create an opportunity for practicing CPAs to take the lead? This month’s column presents a sampler of some interesting, and hopefully useful, resources on non-GAAP reporting.

Articles and Reports

Readers will find easy access to the SEC’s newest and updated Compliance and Disclosure Interpretations (CDIs) on “Non-GAAP Financial Measures,” issued in May 2016 at (See sidebar for more information.) The original post–Sarbanes-Oxley Act of 2002 (SOX) Final Rule defined what is and is not a non-GAAP measure, as well as disclosure and reconciliation requirements. The May 2016 CDI, presented in question-and-answer format, addresses potential misleading non-GAAP measures and presentations, necessary disclosures, and other topics such as segment reporting (

While FASB is responsible for developing financial accounting and reporting standards that follow GAAP, readers may find two items of particular interest regarding non-GAAP metrics in the FASB Outlook e-newsletter ( “Why the FASB Cares About Non-GAAP Performance Measures,” by FASB Chair Russell Golden, discusses three types of performance reporting. GAAP is the “gold standard” developed through a transparent standards-setting process, and includes metrics such as net income, earnings per share, and operating cash flows. Non-GAAP measures are alternatives to GAAP, and according to Mr. Golden are based on information found in the GAAP financial statements. As such, non-GAAP numbers should be reconcilable to the GAAP information. Key performance indicators are “not defined by an authoritative standard setter” and may include nonfinancial information (

In “For the Investor: The Use of Non-GAAP Metrics,” analyst Marc Siegel states that non-GAAP measures can provide additional insights to the financial statements; however, non-GAAP metrics should be correlated with GAAP numbers. The goal of any presentation should be to increase understandability of performance results (

Ernst & Young’s “Technical Line: Spotlight on Non-GAAP Financial Measures” (Apr. 28, 2016) is an eight-page PDF that provides example SEC comments on presenting useful information, accurate explanations, and the prominence of non-GAAP disclosures in comparison to GAAP numbers, along with a sample before-and-after disclosure. The Appendix presents a short table of requirements and prohibitions for SEC filings, earnings releases, and other communications ( EY followed up with a four-page “To the Point: SEC Staff Updates Guidance on Non-GAAP Financial Measures” in May 2016, after the SEC issued its CDI (

Deloitte periodically publishes its handy Roadmap series on selected financial reporting topics, available without charge on its website ( or by e-mail subscription. Its “A Roadmap to Non-GAAP Financial Measures” is a must-see and is downloadable as an 80-page PDF. The document provides an overview of SEC guidance, descriptions of non-GAAP measures, disclosure requirements, misleading or prohibited measures, disclosure controls, and press releases. There are several appendices with SEC-related information, including example SEC comments on non-GAAP measures (


Francine McKenna’s pre-MarketWatch blog, re: The Auditors (, offers access to a print version of her remarks on non-GAAP metrics at the New York University Forum in November 2016 ( McKenna discusses some of the problems with non-GAAP reporting from her perspective as a journalist and accountant, concluding with some difficulties in requiring non-GAAP numbers to be audited. The blog also offers “The SEC on Non-GAAP Metrics: A Collection of Writing at MarketWatch,” which provides summaries and links to the original posts ( An August 2016 post on MarketWatch reports “How the Biggest Companies in the S&P 500 Use Made-up Earnings Numbers,” including an embedded table of the 50 largest companies’ GAAP versus non-GAAP earnings per share numbers and links to related articles (

For short blog posts with a sense of humor, AccountingFly’s Going Concern blog ( regularly provides non-GAAP updates in the Accounting News Roundup articles, with links to the underlying sources. “Accounting News Roundup: Deloitte and AWS; Can Non-GAAP Improve GAAP?” finds author Caleb Newquist musing over FASB Chair Russell Golden’s comments discussed above ( “Accounting News Roundup: Apple’s Taxes and Companies Get the Hint re: Non-GAAP Metrics” links to a Compliance Week article on a new Audit Analytics Trend Report (, which reveals that for the second quarter of 2015, 40% of the S&P 500 companies presented non-GAAP metric more prominently than the GAAP numbers. Following an SEC push to bring this to public attention, less than 6% of the S&P 500 made the same error on their third-quarter 2015 reports. One company that didn’t get the message is addressed in “SEC Fines Company for Failing to Mention That They Paid for CEO’s Lavish Perks (and Some Non-GAAP Stuff, Too),” which reports on an SEC Administrative Proceeding (File 3-17795) against MDC Partners Inc. For six quarters, the company reported non-GAAP measures with greater prominence than GAAP earnings, and for seven quarters presented “organic revenue growth” without reconciling it to GAAP revenue (


Philip de Vroe, the Finance Storyteller, maintains a blog on business, finance, and business travel topics at He has uploaded more than 40 videos to his Finance Storyteller YouTube channel ( “Non-GAAP versus GAAP Metrics” is a must-see video that runs about 10 minutes and discusses the difference between GAAP and non-GAAP concepts, common non-GAAP metrics, and regulatory guidance ( He provides tremendous guidance for stakeholders to identify non-GAAP metrics: look for the terms “adjusted” and “excluding,” as well as “normalized,” “underlying,” or “pro forma.” A related video is “EBIT and EBITDA Explained Simply,” which discusses what the terms mean, how they are calculated, and why companies use them ( As always, de Vroe provides useful real-world examples.

PricewaterhouseCoopers (PwC) has several interesting, short YouTube videos addressing non-GAAP presentations. “Non-GAAP Measures” runs six minutes and covers CDIs from May 2016, such as cherry-picking concerns and the appropriateness of eliminating nonrecurring or unusual events. PwC suggestions include consideration of the magnitude, frequency, and nature of items, along with the importance of consistency (

“Investor View—Non-GAAP Measures” was published in 2013, but the points addressed are still quite timely ( Non-GAAP measures help investors by highlighting, industry-specific and additional, relevant information. Credibility issues do arise, since non-GAAP data is not audited, making it particularly important to maintain consistency and link to official audited numbers.

The Big CPA Show ( published a slightly longer (14 minutes) program covering “The SEC’s War on Non-GAAP Measures” in June 2016 ( The presenter, Sam Shafer, discusses what non-GAAP measures are, why companies report them, and which issues have created concerns at the SEC. He also provides examples of the specific points in the May 2016 CDI. It would be helpful to have the CDI available to follow along with Shafer’s discussion; it can be accessed at Shafer is a particular fan of two non-GAAP measures: free cash flow and EBITDA.

“NDI Checkpoint: Non-GAAP Financial Measures” is a recording of a recent one-hour attorney continuing education session ( For users who need to start at the very beginning, the entire one-hour video may be worth watching; however, CPAs may want to start at about 24:30 (slide 16) with a practical example of nine typical adjustments across several real (but not identified) companies, as well as a discussion of some of the problems (slide 17) and recent trends (slide 18 and 19).

SEC Final Rule: Conditions for Use of Non-GAAP Financial Measures

SEC Compliance and Disclosure Interpretations (CDIs)

Non-GAAP Financial Measures Q&A (May 2016)

Audit Analytics® Trend Report

“Corporate Implementation of SEC’s Compliance & Disclosure Interpretations Regarding Non-GAAP Financial Measures” (December 2016), $25,

Audit Analytics® Article

“Trends in Non-GAAP Disclosures” (December 2015)

Susan B. Anders, PhD, CPA/CGMA is the Louis J. and Ramona Rodriguez Distinguished Professor of Accounting at Midwestern State University, Wichita Falls, Tex. She is a member of The CPA Journal Editorial Board.