United States

Non-GAAP measures: A roadmap for audit committees

FINANCIAL REPORTING INSIGHTS  | 

The Center for Audit Quality (CAQ) recently communicated key considerations for an audit committee’s oversight of a company’s use of financial measures that do not conform to U.S. generally accepted accounting principles (GAAP). In Non-GAAP Measures: A Roadmap for Audit Committees, the CAQ provides leading practices for evaluating non-GAAP measures, including among other recommendations, that the audit committee:

  • Put itself in the shoes of investors when evaluating whether the non-GAAP measures and related disclosures align with the company’s overall strategy and performance
  • Ask management whether it has an internal policy that provides guidelines for determining how non-GAAP measures are generated, calculated and presented
  • Ask the company to compare or benchmark its non-GAAP measures to those of its peers
  • Leverage external auditors as a resource when evaluating non-GAAP measures
  • Engage with investors directly or through investor relations to ensure the presented non-GAAP measures aid investors’ understanding of the company’s performance

In addition, the CAQ released a companion video featuring interviews with audit committee chairs that provide additional context and real-life examples of how audit committees are overseeing non-GAAP measures.