In our latest On point. we discuss the nature and purpose of non-GAAP financial measures and the rules governing the use of such financial measures. We also examine recent SEC comment letters and discuss areas of concern identified by the Staff. Last, we look at recent pronouncements that provide guidance on best practices for companies
Financial Reporting
PCAOB Staff Guidance on Critical Audit Matters
The PCAOB recently published Staff guidance that sets out the Staff’s views relating to implementing the critical audit matters (CAMs) requirement. In its piece, “Implementation of Critical Audit Matters: the Basics,” the Staff notes that for large accelerated filers the CAMs requirement will become effective for audits of fiscal years ending on or…
Key PCAOB Areas of Focus
The PCAOB recently released its 2019 Staff Inspections Outlook for Audit Committees. During its 2019 inspections, the PCAOB has said that its inspections will focus on among other things:
- Technological developments affecting audits, including the use of software audit tools, and responses to risks associated with cybersecurity breaches;
- Audit firm responses to past inspection
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Securities and Exchange Commission Continues to Comment on Non-GAAP Financial Measures Used by REITs
In recent years, the Staff of the Securities and Exchange Commission (the “SEC”) has been providing comments regarding companies’ presentations of non-GAAP financial measures in public filings. We surveyed and discussed the non-GAAP comments issued by the Staff to REITs, which can be found here. In the period since the publication of the survey,…
On point. – Target and Pro Forma Financial Statement Requirements for Significant Acquisitions
US reporting companies that are planning or have completed a significant acquisition of a business may need to file separate target financial statements and related pro forma financial statements under Rule 3-05 and Article 11 of Regulation S-X. The specific SEC rules and financial reporting obligations triggered by a significant acquisition can be quite complex…
Disclosure Tone after Financial Misconduct
In a recent paper titled “Damage Control: Changes in Disclosure Tone After Financial Misconduct,” authors Rebecca L. Files, Alex Holcomb, Gerald S. Martin, and Paul Mason assess how companies change the tone of their required disclosures in order to mitigate the effect of financial misconduct. In evaluating tone, the study focuses on the…
Report from SEC Office of the Investor Advocate
Before the SEC shutdown, the Office of the Investor Advocate published the annual report on its activities during 2018. The report addresses non-GAAP financial measures and key performance indicators. The report notes that some investors find value in non-GAAP financial measures; however, others are troubled by inconsistent and changing disclosures and would like to see…
Legal Update: SEC Is Serious About “Equal Prominence” Rule in Presentation of Non-GAAP Financial Measures in Earnings Releases
In a recent cease and desist order accompanied by a $100,000 civil penalty, the US Securities and Exchange Commission (SEC) gave a strong reminder of the importance of providing equal or greater prominence to the most directly comparable financial measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP) in disclosures containing non-GAAP…
SEC Is Serious About “Equal Prominence” Rule in Presentation of Non-GAAP Financial Measures in Earnings Releases
In a recent cease and desist order accompanied by a $100,000 civil penalty, the US Securities and Exchange Commission (SEC) gave a strong reminder of the importance of providing equal or greater prominence to the most directly comparable financial measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP) in disclosures containing non-GAAP…
Legal Update: 10 Tips for 10-Ks and Proxy Statements
With preparations shifting into high gear for calendar-year companies that file annual reports on Form 10-K and proxy statements with the US Securities and Exchange Commission, this Legal Update provides tips to consider when drafting these documents.
To learn more, read our Legal Update.