Appendix A — Non-GAAP Measures: What to Ask
Management should consider the following questions related to its use of non-GAAP measures:
- Is the measure neither misleading nor prohibited?
- Is the measure presented with the most directly comparable GAAP measure and with no greater prominence than the GAAP measure?
- Is the measure appropriately defined and described, and is it clearly labeled as non-GAAP?
- Does the reconciliation between the GAAP and non-GAAP measure clearly label and describe the nature of each adjustment, and is each adjustment appropriate?
- Is there transparent and company-specific disclosure of the substantive reason(s) why management believes that the measure is useful for investors and the purpose for which management uses the measure?
- Does the registrant have a policy regarding appropriate non-GAAP measures and, if so, how is it determined? Is the measure consistently prepared from period to period in accordance with that policy, and is it comparable to that of its peers?
- If the registrant makes changes to its non-GAAP measures, are the changes clearly described, and are the reasons for the changes clear?
- Is the measure balanced (i.e., does it adjust not only for nonrecurring expenses but also for nonrecurring gains)?
- Does the measure appropriately focus on material adjustments and not include immaterial adjustments that would not seem to be a focus of management?
- Do the disclosure controls and procedures address non-GAAP measures?
- Is the audit committee involved in the oversight of the preparation and use of non-GAAP measures?
The CAQ has also issued Non-GAAP Measures: A Roadmap for Audit Committees.
The tool is available on the CAQ's Web site.