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Questions About Non-GAAP Measures for Audit Committees


question-markThe Center for Audit Quality — an autonomous, nonprofit public policy organization composed of accounting professionals — has compiled a checklist of possible questions for audit committees to ask management and external auditors before using non-GAAP metrics. Here are 11 of its questions that address the transparency of non-GAAP disclosures:

  1. What’s the purpose of the non-GAAP measure, and would a reasonable investor be misled by the information?
  2. Has the non-GAAP measure been given more prominence than the most comparable GAAP measure?
  3. How many non-GAAP measures have been presented, and are they all necessary and appropriate for investors to understand performance?
  4. Why has management selected a particular non-GAAP measure to supplement GAAP measures that are already established and consistently applied within its industry or across industries?
  5. Does the company’s disclosure provide substantive detail on its purpose and usefulness for investors?
  6. How is the non-GAAP measure calculated, and does the disclosure clearly and adequately describe the calculation, as well as the reconciling items between the GAAP and non-GAAP measures?
  7. How does management use the measure? If so, has that use been disclosed?
  8. Is the non-GAAP measure sufficiently defined and clearly labeled as non-GAAP; could it be confused with a GAAP measure?
  9. Are per-share non-GAAP measures in substance per-share non-GAAP liquidity measures, which are prohibited, or could they be used as liquidity measures even if disclosed as a performance measure?
  10. What are the tax implications of the non-GAAP measure, and does the calculation align with the tax consequences and the nature of the measure?
  11. Does the company have material agreements, such as a debt covenant, that require compliance with a non-GAAP measure? If so, is it disclosed?

This list isn’t all-inclusive. The Center for Audit Quality provides additional questions that address the consistency and comparability of non-GAAP metrics. A company and its audit committee should take a customized approach in evaluating whether non-GAAP will enhance GAAP performance measures — or mislead investors into believing a rosier story about the company’s short-term performance than what’s told by U.S. GAAP figures.

Daniel J. Ward, CPATo discuss this further, contact Dan Ward, Principal, Audit Services, at 314.983.1237 or



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