SEC Updates Q&A on Non-GAAP Financial Measure, Expresses Concerns

The SEC updated its questions and answers of General Applicability concerning non-GAAP financial measures. Each of the first four questions in the Q&A, all of which are newly updated, address situations where the SEC is concerned that issuers are using non-GAAP financial measures for the purpose of misleading investors.

Among the non-GAAP adjustments that the SEC indicates may be misleading are:

• excluding normal, recurring cash operating expenses (question 100.01);
• inconsistent treatment of charges or gains in different periods (question 100.02);
• excluding non-recurring charges, but including non-recurring gains (question 100.03); and
• individually tailored revenue recognition numbers (question 100.04).

There were a number of other updates provided by the SEC, primarily focused on the same theme of concern as to the manipulation of non-GAAP financial measures.