New CAQ Roadmap Can Help Audit Committees Enhance Oversight of Non-GAAP Measures
Friday, March 16, 2018
Publication captures insights from series of non-GAAP roundtables
Washington, DC – Companies and investors can benefit from increased audit committee oversight of financial measures that do not conform to US Generally Accepted Accounting Principles (GAAP), finds a new report from the Center for Audit Quality (CAQ). Presenting themes that emerged at a series of multi-stakeholder roundtables, Non-GAAP Measures: A Roadmap for Audit Committees, provides a set of key considerations for audit committees, including leading practices to assess whether a company’s non-GAAP metrics present a balanced representation of the company’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 Cindy Fornelli, CAQ executive director. “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.”
Among other recommendations, 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 company to compare or benchmark its non-GAAP measures to its peers.
- Leverage external auditors as a resource when evaluating non-GAAP measures.
- Engage with investors directly or through investor relations to ensure that the presented non-GAAP measures aid investors’ understanding of the company’s performance.
In addition to the roadmap, the CAQ has released a companion video featuring interviews with audit committee chairs that provides additional context and real-life examples of how audit committees are thinking about and overseeing non-GAAP measures.
Held in 2017, the CAQ’s non-GAAP roundtables brought together audit committee members, management, investors, securities lawyers, and public company auditors. Among other topics, participants explored GAAP as the “bedrock” of the financial information, why companies present non-GAAP measures, challenges related to non-GAAP measures, the role of the external auditor, and the importance of dialogue in fostering good judgment.
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About the CAQ
The Center for Audit Quality (CAQ) is an autonomous, nonpartisan public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors’ objectivity, effectiveness, and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. For more information, visit www.thecaq.org.