TheCorporateCounsel.net

April 6, 2018

Non-GAAP Measures: A Roadmap for Audit Committees

There’s still room for improvement in the presentation of non-GAAP measures – and the “Center for Audit Quality” is here to help. The CAQ’s “roadmap” is intended to support audit committees’ oversight of non-GAAP reporting – specifically, to make sure that the company’s non-GAAP measures are a balanced representation of company performance. It identifies key discussion topics, clarifies the external auditor’s role, and suggests three best practices:

1. Disclosure Controls: Non-GAAP measures should be subject to robust disclosure controls. Establishing disclosure controls specific to non-GAAP measures could enable companies to mitigate risks and support sound decision making about their reporting. The disclosure controls should be documented and robust enough to facilitate testing of the controls. Roundtable participants emphasized that disclosure controls could drive more consistency and transparency into preparation and presentation of non-GAAP measures.

2. Non-GAAP Policies: Management representatives shared that they have established policies that provide a set of guidelines to follow when preparing and presenting non-GAAP measures. These policies can help in making decisions on the treatment of new transactions or events within non-GAAP measures that the company presents. Also, having policies in place can help promote consistency in the measures that are presented and the way they are calculated. While not all companies have the same policies, participants cited having non-GAAP policies as a valuable tool to ground discussions and decisions related to non-GAAP measures.

3. Audit Committee Disclosure: Few, if any, companies currently disclose their non-GAAP policies. There was no consensus regarding whether disclosure of the company’s non-GAAP policies Рor simply disclosing that the company has a non-GAAP policy Рwould be a good practice. However, given the current regulatory environment and the fact that non-GAAP measures are important to investors and are central to their decision making, there could be benefits to an audit committee voluntarily disclosing that the company has non-GAAP policies (but not necessarily the relevant details of those policies). Such disclosure could demonstrate to investors the importance of this information to the audit committee and that policies are in place to support the metrics being consistent, transparent, and comparable.

The “roadmap” is just the latest resource the CAQ has published on this topic. To learn more about non-GAAP measures – and the audit committee’s role in overseeing them – visit our “Regulation G” Practice Area. Also check out this blog from Cooley’s Cydney Posner.

Meanwhile, check out this MarketWatch article about how PwC faces the largest-ever auditor malpractice damages verdict…

More on Fitbit’s “Unreal” Tender Offer

Last year, Broc blogged about someone filing a fake Schedule TO-C on Fitbit’s Edgar page. The SEC has now announced that the guy behind it was sentenced to two years in prison. Remember, this was for $3k in profit. Crime really doesn’t pay…

Pay Ratio: What the First 1000 Filings Show

Broc recently blogged this on CompensationStandards.com: ProxyInsight’s Seth Duppstadt reports that over 1000 proxies with pay ratios have been filed so far – the 4 highest ratios are 2818, 2526, 2483 and 2028. Wonder how those companies will fare with say-on-pay this year?

You will want to see this Pearl Meyer blog entitled “Median Employee Pay Not Quite the Spectacle Anticipated.” Deb Lifshey reports “the average of employees identified at median is nearly $75K, which is larger than many expected.” Here’s another excerpt from Deb’s blog:

Not surprisingly, the highest average median pay, based on data collected thus far, is found within the utility sector at around $151K, with energy ($107K) and real estate ($104K) following a distant second and third. Industries at the lower end of averaged median employee pay are consumer discretionary ($42K), consumer staples ($44K) and industrials ($60K).

Surprisingly, the highest average median pay falls in a middle range of company size by revenue. It is larger for companies with revenues between $1B to $3B, ($82K), as compared to those companies with revenues smaller than $1B or larger than $3B.

Companies with fewer employees also had higher average median pay. Those with under 1,500 employees have an averaged median around $98K, compared to those with over 20,000 employees, where the average median is about $58K.

Also check out the latest from the many pay ratio compilations we have posted in our “Pay Ratio” Practice Area on CompensationStandards.com – including this one from Willis Towers Watson entitled “Comparing Pay Ratios: What the First 200 Filings Show.” Finally, it’s your last chance to obtain a 20% early bird discount on our “Pay Ratio & Proxy Disclosure Conference.” Deadline is next Friday, April 13th…

Liz Dunshee