TheCorporateCounsel.net

April 20, 2023

Non-GAAP: Audit Committee Disclosure Oversight

In a recent blog, Cooley’s Cydney Posner discussed the implications for audit committees of the SEC’s latest enforcement proceeding involving non-GAAP financial measures. This excerpt addresses some of the challenges confronting audit committees in providing oversight to their company’s non-GAAP disclosures:

Just what is the role of the audit committee when it comes to non-GAAP financial measures? The CAQ has characterized the audit committee’s oversight role as an important one that positions the committee to “act as a bridge between management and investors,” assessing whether “the measures present a fair and balanced view of the company’s performance.” But non-GAAP financial measures present challenges for audit committees: why is management using this measure? Is it consistent with the measures used by the company’s peers? Is the disclosure adequate? In addition, to the extent that non-GAAP measures may be used in determining incentive compensation, audit committee oversight becomes even more critical.

Cydney pointed to a PwC memo as a source of guidance to boards on these and other issues implicated in providing appropriate oversight to non-GAAP disclosures.

John Jenkins