In recent speeches, SEC Chair Mary Jo White and Chief Accountant James Schnurr have addressed the SEC’s growing concern regarding the use of non-GAAP measures in financial reporting. The SEC initially adopted Regulation G in 2003, which permits issuers to provide non-GAAP measures in financial statements and disclosures where such financial information can supplement other disclosures and convey information that the issuer believes is relevant and important in understanding its performance and financial operations. The SEC requires these non-GAAP disclosures to be reconciled with GAAP measures and given equal prominence in financial statements and disclosures for the benefit of investors.

Chair White and Chief Accountant Schnurr also have urged companies to ensure that use of the non-GAAP measures is not leading to analyst and investor confusion given the increased use of non-GAAP information in recent years. The SEC has expressed particular concern about the nature of adjustments to arrive at alternative, non-GAAP measures of profitability, as compared to net income and alternative measures of cash generation. The SEC recommends that issuers, including audit committees and management, evaluate current practices in financial reporting and whether non-GAAP information is currently used as an alternative to GAAP to present a more optimistic view of financial performance. The SEC also is considering adopting additional regulations to address this concern.

Chair White’s “Keynote Address at the December 2015 ACPA National Conference: Maintaining High-Quality, Reliable Financial Reporting: A Shared and Weighty Responsibility” on December 9, 2015 is available at: https://www.sec.gov/news/speech/keynote-2015-aicpa-white.html

The “Discussion with SEC Chair White” at the U.S. Chamber of Commerce’s 10th Annual Capital Markets Summit on March 16, 2016 is available at: http://videos.uschamber.com/detail/videos/capital-markets-summits/video/4805706279001/2016-capital-markets-summit—conversation-with-sec-chair-white

Chief Accountant Schnurr’s “Remarks before the 12th Annual Life Sciences Accounting and Reporting Congress” on March 22, 2016 are available at: https://www.sec.gov/news/speech/schnurr-remarks-12th-life-sciences-accounting-congress.html