The CAQ's newly-released "Non-GAAP Measures: A Roadmap for Audit Committees" suggests action steps and discussion topics for audit committees in their engagement with management, external auditors, and investors to bolster confidence and trust in - and the consistency, transparency and comparability of - the company's non-GAAP disclosures, based on input gleaned from a series of 2017 roundtable discussions that included audit committee members, company management, investors, securities lawyers, and auditors.
Recommendations for the audit committee include:
- Putting itself in investors' shoes when evaluating if the proposed non-GAAP measures and related disclosures align with the company's overall strategy and performance
- Asking management whether it has an internal policy with guidelines for determining how non-GAAP measures are generated, calculated, and presented
- Discussing with management how the company makes changes to the non-GAAP measures it presents, and the rationale for why it would/would not make changes
- Asking the company to compare or benchmark its non-GAAP measures to its peers
- Asking the external auditors for their view of the company's non-GAAP measures as compared to peer companies
The publication also highlights leading practices some companies have implemented to help facilitate the above objectives - including robust disclosure controls specific to non-GAAP measures, internal guidelines for preparing and presenting non-GAAP measures, and voluntary audit committee disclosure as to the existence (not the details) of non-GAAP policies to bolster investor confidence.
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This post first appeared in this week's Society Alert! Access numerous additional resources and information on non-GAAP measures and disclosure on our Financial Reporting page.
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