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Chapter 4 — Non-GAAP Measures That May Be Misleading or Prohibited and Other Considerations Related to Common Non-GAAP Measures

4.7 Performance Measure Prohibitions

4.7 Performance Measure Prohibitions

Many registrants adjust GAAP earnings for items they consider to be one-time, nonrecurring, infrequent, or unusual, such as restructuring charges, asset impairments, and gains and losses on asset sales. Depending on the description of the item, these same items may be a prohibited adjustment for a non-GAAP performance measure. Item 10(e) prohibits registrants from adjusting a non-GAAP performance measure “to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years.” C&DI Question 102.03 clarifies that a charge or gain may be presented as an adjustment as long as it is not inappropriately labeled or described as nonrecurring, infrequent, or unusual when it is not.