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During last Thursday’s meeting, the Investor Advisory Committee also discussed non-GAAP financial measures, including whether current requirements related to non-GAAP disclosures (Regulation G and Item 10(e) of Regulation S-K) should be strengthened and whether greater standardization would benefit investors. Here are a few notable points made during the discussion by panelists Timothy Brown of KPMG, Steven Grey of Grey Value Management, Jeff Mahoney of the Council of Institutional Investors, Vanessa Teitelbaum of the Center for Audit Quality and Jose R. Rodriguez, independent board and audit committee chair.

– As Liz shared yesterday on CompensationStandards.com, Jeff Mahoney gave a strong reminder that transparency of non-GAAP measures in the context of executive compensation disclosures remains a priority for CII and its members. It’s one of the three main advocacy priorities that CII has identified for 2025. (CII previously submitted a rulemaking petition and follow-up letter on this topic.) Specifically, CII wants the Compensation Discussion & Analysis section of the 10-K or proxy statement to include an explanation of why non-GAAP measures are better than GAAP for determining executive pay and to include a quantitative reconciliation (or hyperlink) — not just the qualitative disclosure as to how the number is calculated from the audited financial statements that is currently required under Instruction 5 to Item 402(b) of Regulation S-K for disclosure of target levels that are non-GAAP financial measures.

– One of the questions presented to the panelists was “What challenges or benefits exist in implementing industry-specific non-GAAP reporting guidelines?” Jose Rodriguez suggested that the SEC release industry-wide guidance after issuing a comment letter to a company that discloses KPIs and non-GAAP measures that have become industry standard. He noted that, when a comment letter is issued, the company receiving the comment pivots its approach accordingly but its competitors often do not — meaning the problematic KPI or non-GAAP measure continues to be disclosed by others.

– Much of the discussion surrounded controls over non-GAAP numbers and the very limited role of a company’s auditors with respect to non-GAAP measures and disclosures. Some committee members expressed concern that investors may not always understand that non-GAAP numbers are unaudited. Some panelists suggested that companies consider engaging external support to weigh in on non-GAAP numbers to check calculations and consider consistency year-over-year, etc., but didn’t go so far as to say that mandating additional review of non-GAAP numbers was appropriate.

If you need a non-GAAP primer (or a deep dive), check out our recently updated “Non-GAAP Financial Measures” Handbook.

– Meredith Ervine