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

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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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.