United States

Requirements for disclosure of tax-related non-GAAP measures

FINANCIAL REPORTING INSIGHTS  | 

As a result of the Tax Cuts and Jobs Act, some registrants will consider disclosing in their annual reports non-GAAP financial measures related to the financial statement impact of the tax law changes. Registrants are reminded that such disclosures must comply with the SEC’s requirements for the use of non-GAAP financial measures. Some of the key provisions of those requirements include:

  • When a non-GAAP financial measure is publicly disclosed, the most directly comparable GAAP measure also must be disclosed, together with other information.
  • A non-GAAP measure should not be more prominently disclosed than the most directly comparable GAAP measure, including in headlines and earnings releases.
  • A non-GAAP financial measure, taken together with the information accompanying that measure, should not contain an untrue statement of a material fact, or omit to state a material fact necessary to make the presentation of the non-GAAP financial measure not misleading.

Registrants also are reminded that the SEC reviews the use of non-GAAP measures, and issues comment letters on the use of non-GAAP financial measures as a result of its targeted reviews and triennial reviews of Form 10-K filings. Registrants should evaluate their current non-GAAP measures and assess whether the measures are in compliance with the SEC’s guidance, which is available as follows:

The Center for Audit Quality’s (CAQ) publication, Questions on Non-GAAP Measures: A Tool for Audit Committees, is designed to help audit committees assess whether management’s presentation of non-GAAP measures is transparent, consistent and comparable. And the CAQ’s white paper, Non-GAAP Financial Measures: Continuing the Conversation, provides summarized background information about non-GAAP financial information, including its definition, use and related disclosure requirements.