7.4 Consideration of SEC Guidance on Non-GAAP Measures

SEC Regulation S-K, Item 10(e)(5), prohibits the disclosure of non-GAAP measures on the face of, or in the footnotes to, the financial statements. Unless such a financial measure is required or expressly permitted to be disclosed under GAAP (such as a measure of segment performance that is not computed on a basis consistent with GAAP measurement principles), it is not considered a non-GAAP measure. Registrants have historically been precluded under ASC 280 from disclosing additional measures of segment profit or loss when such measures are not computed on a basis consistent with GAAP measurement principles within the notes to the financial statements. Therefore, such additional non-GAAP measures of profit or loss that were used by the CODM could only be presented as non-GAAP measures outside the financial statements (e.g., within MD&A), provided that they complied with the SEC’s non-GAAP rules and regulations.

As noted in Section 4.4.2, public entities are now permitted under ASU 2023-07 to disclose more than one measure of segment profit or loss, provided that at least one of the reported measures is the segment profit or loss measure that is most consistent with GAAP measurement principles (the “required measure”). In some cases, measures beyond the required measure may not be determined in accordance with GAAP. At the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the SEC staff noted that it does not believe that such additional measures are “required or expressly permitted” by GAAP (since such measures are not “clearly and specifically identified” in the ASU as specific measures that may be disclosed, such as EBITDA). The staff indicated that such measures therefore would be considered non-GAAP measures. Registrants are encouraged to consult with their auditors, SEC counsel, or the SEC staff if they intend to disclose additional measures that are not consistent with GAAP.

See Chapter 4 of this Roadmap for additional details on multiple measures of segment profit or loss; see Section 2.5 of Deloitte’s Roadmap Non-GAAP Financial Measures and Metrics for further considerations.