SEC Expresses Concerns Over Aggressive Adjustments To Earnings

Currently, companies are generally permitted to use profit figures that reflect adjustments to profit measures calculated and presented in accordance with US generally accepted accounting principles ("GAAP") or IFRS, so long as—if such non-GAAP measures are disclosed in SEC filings—they are not misleading and are not given greater prominence than the comparable GAAP measures and a reconciliation is provided to the most directly comparable GAAP (or IFRS) measure. For members of the Dow Jones Industrial Average that reported non GAAP earnings per share in 2015, the adjusted metric was on average 30% above earnings per share under GAAP, according to data from FactSet.

The SEC has recently questioned such aggressive financial reporting practices in comment letters to a number of SEC reporting companies, which have agreed to scale back their use of adjusted measures.