According to Tatyana Shumsky at the Wall Street Journal, the Securities and Exchange Commission has increased efforts to regulate the use of accounting metrics that do not conform to the U.S. Generally Accepted Accounting Principles, known as non-GAAP. The SEC’s endeavor began through its division of corporation finance, which issued new compliance guidelines and sent more non-compliance letters to companies than it had in the past. More recently, the SEC’s enforcement division is getting involved and has been probing companies on their non-GAAP financial reporting practices, as reported by the WSJ. Indeed, according to Michael Maloney, chief accountant of the SEC’s enforcement division is looking into violations of rules governing non-GAAP metrics. "It is a focus in within the division, we are looking closely at it," Mr. Maloney told the American Institute of CPAs conference in Washington on Tuesday, as reported by Shumsky.
The takeaway for companies that use non-GAAP metrics in their financial reporting is that the SEC has signaled their intent to increase regulation and enforcement in this area. Be sure your compliance team has reviewed your non-GAAP financial reporting practices, particularly in light of the SEC’s division of corporate finance’s new compliance guidelines, which can be found here: https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm
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