Questions the Board Should Be Asking About Non-GAAP Measures
July 27, 2016
Terry Ward, a partner with PwC’s Governance Insights Center, joins host TK Kerstetter to discuss… Questions the Board Should Be Asking About Non-GAAP Measures.
Board Governance Best Practices | Episode Summary
Non-GAAP measures are nothing new. They’ve been around since the 1990s, yet they’ve become a hot topic recently with nearly 90% percent of the S&P 500 now using at least one type of non-GAAP measure. As the difference between GAAP and non-GAAP measures continues to widen, the SEC has turned its attention to the issue.
The SEC Issues Guidance on Non-GAAP
In this episode, Terry Ward, Partner with PwC’s Governance Insights Center, walks us through this hot-button board topic. The issue, Ward explains, is a loss of investor confidence in reported company financial information, which has resulted in the SEC’s issuance of interpretive guidelines. Are companies painting too rosy a financial picture in using non-GAAP measures?
What’s the Audit Committee’s Role in Non-GAAP Measures?
Ward encourages audit committees to take a deep dive into non-GAAP measures and examine why they’re there in the first place. PwC’s latest resource, To GAAP or Non-GAAP: The SEC is Watching, provides a list of questions that audit committees can ask of management in order to take a deep dive:
- Why is this non-GAAP measure being provided? Is it useful to investors? Have they provided feedback?
- What purpose does the measure serve internally?
- Is the company’s process to calculate the non-GAAP measure robust enough?
- Is there a judgement involved in the measures? Does management have a bias to adjust those measures in order to meet earnings expectations?
Don’t miss PwC’s resource and a great episode on this timely topic.
The filming of this episode of Inside America’s Boardrooms was made possible by our knowledge partners. Don’t miss our Knowledge Partner Resources.
More Episodes on Board Governance:
- How Your Board Can Influence Risk Related to Company Culture
- The Pros, Cons, and Controversies of Poison Pills
- Why Board Evaluations Must Be a Primary Focus in 2017