CAQ: Auditors can boost value of non-GAAP measures, KPIs

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As more and more companies supplement traditional financial reporting with non-GAAP measures and other key performance indicators, a significant new opportunity is opening up for auditors, according to the report.

Released on Tuesday by the Center for Audit Quality, “The Role of the Auditor in Non-GAAP Financial Measures and Key Performance Indicators: Present and Future” explores how external auditors can add value to this kind of information, and help to make it both more reliable and more comparable.

When these non-GAAP measurements exist outside audited financial statements, auditors are not currently responsible for attesting to their accuracy or reliability – but that doesn’t mean they couldn’t.

“In their public interest role, public company auditors play a role in the flow of comparable and reliable information for decision-making,” said CAQ executive director Julie Bell Lindsay, in a statement. “Having auditors associated with non-GAAP financial measures and KPIs could bring additional discipline to management’s process and help enhance the trust and confidence in such information.”

Non-GAAP measures and KPIs are frequently used by public companies to offer a clearer picture of their performance, long-term value and overall health; over three-quarters of the S&P 500, for instance, use at least one (see chart).

The report suggests that auditors could be engaged to assess the quality and consistency of a company’s non-GAAP financial measures and KPIs, or to perform examinations to determine whether a company complied with the Securities and Exchange Commission rules and regulations related to their preparation and disclosure.

“Clarity around the development of these measures, quality in their preparation, and strong oversight in their reporting and disclosure is critical given the importance of non-GAAP financial measures and KPIs in decision making,” said Lindsay.

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