Non-GAAP Metrics Essay
Why is the SEC so vehement in their stance that non-GAAP metrics should NOT be used?
Generally Accepted Accounting Principles (GAAP) refers to rules, policies, and procedures set and followed by accounting officers in the recording and summarization of accounting transactions. These principles offer a guideline for honest, accurate, consistent, and fair financial reporting. It is mandatory that public companies follow GAAP; but for private firms, it is not compulsory. In the recent past, the utilization of non-GAAP measures has advanced. However, the SEC vehemently is against their use in presenting financial statements.
In most instances, non-GAAP financial information is relied upon as the main message to and by investors. This has led to crowding out as well as effective supplanting of GAAP and their presentation. In this perspective, various troublesome operations make non-GAAP disclosures unreliable….Show More Content….
Currently, the SEC is very clear on cracking down the utilization of non-GAAP figures. The SEC categorically advocates for the use of GAAP measures for auditing standards in both public and private companies. The main reason behind this vehemence stance is that investors are having different views about the most suitable regulatory responses. The most certain aspect is that non-GAAP metrics are strictly being scrutinized by the SEC, to ensure that firms deciding to disclose financial information exercises due care and diligence to limit chances of making claims whose potential mislead investors. Non-GAAP Metrics Essay
Is the use of non-GAAP financial metrics an attempt to mislead investors?
Sometimes, using non-GAAP metric guidelines works against financial statement users’ interests. These unaudited figures can sometimes get utilized in misleading investors and also to artificially inflate the stock price of a public company. In this perspective, using non-GAAP metrics mislead investors in various directions.
Some executives and investors believe that the unaudited financial metrics, such as earnings before interest (EBI), taxes, depreciation, and amortization, give a more substantial insight of….Show More Content….