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Policy implications of research on non-GAAP reporting

Author

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  • Black, D.E.
  • Christensen, T.E.

Abstract

Over the past two decades, the regulatory landscape for non-GAAP reporting has evolved significantly. Despite a temporary decline in the frequency of non-GAAP reporting following Regulation G, the incidence of non-GAAP disclosure has continued to increase steadily, leading to a current all-time high in reporting activity. This proliferation of non-GAAP disclosure has captured the attention of standard setters and regulators in recent years. This paper provides an academic perspective on policy implications for both regulation and standard setting. We contend that current Compliance and Disclosure Interpretations (C&DIs) of the SEC staff may perhaps have gone too far in restricting certain types of non-GAAP disclosures. As a result, we advocate a slight relaxation of the current enforcement of Regulation G. We agree with FASB proposals for greater disaggregation in the income statement to allow for more transparency in non-GAAP reporting. Finally, we believe the PCAOB should consider requiring auditors to take a more direct role with respect to non-GAAP disclosures.

Suggested Citation

  • Black, D.E. & Christensen, T.E., 2018. "Policy implications of research on non-GAAP reporting," Research in Accounting Regulation, Elsevier, vol. 30(1), pages 1-7.
    • Handle: RePEc:eee:reacre:v:30:y:2018:i:1:p:1-7
    DOI: 10.1016/j.racreg.2018.03.001
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    References listed on IDEAS

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    2. Hsu, Charles & Wang, Rencheng & Whipple, Benjamin C., 2022. "Non-GAAP earnings and stock price crash risk," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    3. Lin, Shu & Xia, Hui Harry & Ryabova, Tatyana, 2020. "The effect of analysts’ GAAP earnings forecasts on managers’ classification shifting," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).
    4. Jarva, Henry & Kallunki, Juha-Pekka & Livne, Gilad, 2019. "Earnings performance measures and CEO turnover: Street versus GAAP earnings," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 249-266.
    5. Sanjeev Bhojraj, 2020. "Stock compensation expense, cash flows, and inflated valuations," Review of Accounting Studies, Springer, vol. 25(3), pages 1078-1097, September.
    6. Laurion, Henry & Sloan, Richard, 2022. "When does forecasting GAAP earnings entail unreasonable effort?," Journal of Accounting and Economics, Elsevier, vol. 73(1).
    7. Thielemann, Felix & Dinh, Tami, 2019. "Non-GAAP earnings disclosures around regulation G – The case of “implicit non-GAAP reporting”," Advances in accounting, Elsevier, vol. 46(C), pages 1-1.
    8. Nilabhra Bhattacharya & Theodore E. Christensen & Qunfeng Liao & Bo Ouyang, 2022. "Can short sellers constrain aggressive non-GAAP reporting?," Review of Accounting Studies, Springer, vol. 27(2), pages 391-440, June.

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