CAQ offers advice for audit committees on non-GAAP measures

The Center for Audit Quailty has released a new publication offering considerations for audit committee members to help with oversight of non-GAAP measures.

The publication, Non-GAAP Measures: A Roadmap for Audit Committees, outlines considerations for audit committees, including how to assess whether a company’s non-GAAP metrics offer a balanced representation of their organization’s performance.

“GAAP information serves as a foundation for confidence in financial statements, but financial statement users also value non-GAAP financial measures, when presented appropriately,” said CAQ executive director Cindy Fornelli in a statement.  “Our roadmap can help audit committees improve and advance their oversight of and involvement with non-GAAP measures, to the benefit of companies and investors.”

Center for Audit Quality executive director Cindy Fornelli at the CAQ's 10th anniversary event

The CAQ suggests that the audit committee:

• Put itself in the shoes of investors when evaluating if the presented 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.

• Discuss with management how the company makes changes to the non-GAAP measures it presents, and the rationale for why it would or would not make changes.

• Ask the organization to compare or benchmark its non-GAAP measures alongside its peers.

• Use outside auditors as a resource when evaluating non-GAAP measures.

• Discuss with investors directly or through investor relations to ensure that the presented non-GAAP measures aid investors’ understanding of the company’s performance.

Along with a roadmap, the CAQ has a posted a video on YouTube with interviews with audit committee chairs that offer more context and real-life examples of how audit committees are considering and monitoring non-GAAP measures.

The recommendations are based on a series of roundtables that the CAQ held last year on the topic of non-GAAP measures, in which audit committee members, management, investors, securities lawyers, and public company auditors participated.

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