Publications

Amid recent comments from Securities and Exchange Commission (“SEC”) Chairman Mary Jo White, SEC Chief Accountant James Schnurr and others, as well as various media reports suggesting increased regulatory scrutiny of financial measures that are not calculated in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), the SEC issued new and revised compliance and disclosure interpretations (“C&DIs”) regarding its rules and regulations on the use of non-GAAP financial measures.  The SEC’s guidance, released on May 17, 2016, provides greater clarity with regard to the use of non-GAAP financial measures and appears to highlight the specific concerns of the SEC.  While much of the guidance is consistent with the current practices in the market, the C&DIs may result in changes to certain practices, particularly in quarterly earnings releases.  The SEC’s new guidance relates broadly to five issues:

1. What constitutes a misleading non-GAAP financial measure;
2. The presentation of non-GAAP liquidity measures;
3. The use of “funds from operations” (“FFO”) in earnings releases and materials filed with or furnished to the SEC;
4. The requirement that, when presenting a non-GAAP measure, the issuer must present the most directly comparable GAAP measure with equal or greater prominence; and
5. How income tax effects related to adjustments to arrive at a non-GAAP measure should be calculated and presented.