Non-GAAP Financial Measures Disclosure: SEC Comments and Enforcement Actions

Investor Alert: SEC Keeps a Close Eye on Non-GAAP Financial Measures

Public companies often include non-GAAP financial measures in their financial reports to provide a deeper understanding of their performance or financial health. These measures adjust the most comparable GAAP measure to include or exclude certain items like irregular or non-recurring expenses.

The U.S. Securities and Exchange Commission (SEC) is closely monitoring the use and presentation of non-GAAP financial measures. Recent enforcement actions have led to public companies paying fines totaling over $20 million since the start of 2023 for improper and misleading use of these measures.

SEC staff comments suggest that more investigations and enforcement actions could be on the horizon. It’s crucial for companies to adhere to the guidelines outlined by Regulation G, Item 10(e) of Regulation S-K, and the SEC’s Compliance and Disclosure Interpretations regarding non-GAAP financial measures.

Regulation G applies to public disclosures containing non-GAAP financial measures, while Item 10(e) regulates filings with the SEC. When disclosing non-GAAP measures, companies must present the most comparable GAAP measure and provide a reconciliation between the two to avoid misleading investors. These rules apply to various forms of communication, including earnings releases, investor presentations, and SEC filings.

Foreign private issuers have slightly different criteria to meet when disclosing non-GAAP financial measures, but the principles of transparency and accuracy remain the same.

In conclusion, it’s essential for companies to follow SEC guidelines when using non-GAAP financial measures to ensure transparency and prevent potential enforcement actions. Stay informed and up to date to avoid any missteps that could lead to fines or penalties down the line.