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Non-GAAP Reporting Trends and Investor Expectations
Non-GAAP financial measures (NGFMs) or non IFRS measures – also referred to as alternative performance measures (APMs) – are voluntary and supplemental measures, where companies have flexibility in how they either adjust defined GAAP/IFRS line items or present additional line items. There are varied reasons provided by companies for communicating adjusted performance measures. CFA Institute reviewed the annual reports of several flagship companies and found that there was a varied level of transparency. Nevertheless, for all the noted shortcomings, NGFMs are most likely here to stay. Bridging the Gap definitely implies enhancing the quality of NGFMs.
1. Overview
Company reporting of NGFMs has been under a heavy spotlight in many quarters – including by securities regulators –with concerns being raised about the sometimes misleading and undue prominence accorded during the reporting of these measures. Yet, these measures are part of the broader spectrum of investors’ company specific information needs (as depicted in Figure 1) and are meant to be incrementally informative to the traditional financial statements information.
2. What are NGFMs?
As defined by various security regulators (E...