United States

SEC reviews use of non-GAAP measures


The SEC has established an internal task force to review selected Form 10-K filings that use “non-GAAP” financial measures. A non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that:

  • Excludes amounts that are included in the most directly comparable measure calculated and presented in accordance with U.S. generally accepted accounting principles (GAAP) in the balance sheet, income statement or statement of cash flows (or equivalent statements) of the issuer; or
  • Includes amounts that are excluded from the most directly comparable GAAP measure so calculated and presented.

The SEC’s reviews of selected Form 10-K filings thus far have resulted in the issuance of comment letters to registrants whose filings were found not to be in compliance with the applicable guidance regarding non-GAAP financial measures. For example, the SEC has stated that any non-GAAP adjustments to revenue and any non-GAAP partial consolidations are deemed unacceptable. It should be noted that the SEC’s targeted reviews of the use of non-GAAP financial measures are independent of any other filing reviews performed by the SEC staff, such as its triennial review of Form 10-K filings. Therefore, SEC comment letters on the use of non-GAAP financial measures can be issued as a result of both targeted and triennial reviews.

The SEC expects that a non-GAAP financial measure, taken together with the information accompanying that measure, 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. When a non-GAAP financial measure is publicly disclosed, certain information must be included in the disclosure. Also, a non-GAAP measure should not be more prominently disclosed than the most directly comparable GAAP measure, including in headlines and earnings releases.

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: