SEC Scrutiny and the Evolution of Non-GAAP Reporting

Kolev, Kalin S.; Marquardt, Carol A.; McVay, Sarah E.

doi:10.2308/accr.2008.83.1.157

Cited by 258 publications

(336 citation statements)

References 31 publications

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“…Un consensus clair semble alors se dégager voulant que la réglementation ait entraîné une diminution géné-rale dans l'utilisation des MFHN ce qui implique non seulement une diminution du nombre d'entités qui publient des MFHN, mais également une diminution de l'ampleur (montant total) des ajustements que ces mesures représentent par rapport aux données conformes aux PCGR (Marques, 2006;Entwistle et al, 2006;Helfin et Hsu, 2008;Kolev et al, 2008;Pawlewicz, 2011). Quoique dans certaines de ces études les diminutions observées soient relativement mineures, elles doivent être mises en perspectives de la tendance historique inverse.…”

Section: Impact De La Réglementationunclassified

“…Enfin, en considérant plus opportunistes les exclusions pour « autres élé-ments » par opposition aux exclusions pour « éléments exceptionnels », la réglementation aura également donné des résultats positifs en démon-trant une diminution plus importante dans les ajustements de la première catégorie (Helfin et al, 2008). Les résultats de cette dernière étude peuvent toutefois être nuancés à la lumière d'une analyse portant spécifiquement sur la qualité des exclusions effectuées dans l'une ou l'autre de ces catégories (Kolev et al, 2008). En considérant qu'une relation négative entre les « exclusions » et les performances futures démontre une mauvaise qualité d'ajustements, en ce que ceux-ci représentent vraisemblablement des items récurrents, l'augmentation dans la qualité des ajustements pour « autres éléments » doit être considérée parallèlement à la diminution observée dans les ajustements pour « éléments exceptionnels », ce qui les amène à conclure dans les termes suivants :…”

Section: Impact De La Réglementationunclassified

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Les mesures financières hors normes – La profession comptable pourrait bien détenir la solution

Lemay

Tremblay

2017

Rev. organ. territ.

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RÉSUMÉ.Les mesures financières hors normes que l'on retrouve en marge des états financiers et qui ne sont donc ni régies par la normalisation comptable, ni couvertes par l'audit indépendant jouissent depuis plusieurs années d'une popularité grandissante. L'investisseur moyen ne pouvant faire la différence entre les données tirées des états financiers audités par des experts-comptables indépendants et toutes les autres informations rendues publiques par les directions d'entités et les médias, il nous apparaît que la normalisation comptable devrait être plus proactive; notamment en améliorant la présentation des états financiers traditionnels de telle sorte à faire ressortir les différents éléments recherchés par les utilisateurs à travers ces mesures alternatives. Il nous semble évident qu'une présentation plus standardisée favorisera la comparabilité d'une entité à l'autre, mais aussi d'une période à l'autre. La profession comptable pourrait ainsi contribuer à limiter les comportements opportunistes de certains dirigeants et s'assurerait de remplir sa mission première, soit la protection du public. ABSTRACT. Non GAAP financial measures that are reported outside of the traditional financial statements are not governed by official accounting standards and they are outside of the independent auditor purview. For every day investors, it has become very difficult to distinguish between financial information that comes from audited financial statements and all the other financial information

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Section: Impact De La Réglementationunclassified

Les mesures financières hors normes – La profession comptable pourrait bien détenir la solution

Lemay

Tremblay

2017

Rev. organ. territ.

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“…Over the past two decades, the use of non-GAAP earnings (also known as "pro-forma", "street", or "core" earnings) has increased dramatically (Bradshaw and Sloan, 2002;Kolev et al, 2008). In 2003, the U.S. Securities and Exchange Commission (SEC) raised concerns regarding the potential misuse of non-GAAP earnings and intervened to regulate the reporting of non-GAAP earnings by issuing Regulation G. Subsequently, in 2010, the SEC issued new Compliance and Disclosure Interpretations (C&DIs), relaxing the rigorous existing SEC 2003 general guidance (the FAQ) on Regulation G and S-K without changing the current regulation.…”

Section: Introductionmentioning

confidence: 99%

“…It considers (i) the association between the exclusions and future operating earnings, (ii) whether positive non-GAAP exclusions are associated with firm's meeting or slightly exceeding analysts' forecasts, and (iii) the market response to earnings announcements around each regulatory and interpretive guidance change. Quality of exclusions are defined as those that are more transitory and have less predictive power for future operating earnings, following Doyle et al (2003), Gu and Chen (2004), Frankel et al (2007), and Kolev et al (2008).…”

Section: Introductionmentioning

confidence: 99%

Market Reaction to Non-GAAP Earnings Around SEC Regulation

et al. 2017

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This paper examines the consequences of the non-GAAP reporting resulting from Regulation G as required by Section 401(b) of the Sarbanes-Oxley Act of 2002 and the SEC's issuance of Compliance & Disclosure Interpretations (C&DIs) in 2010. The paper finds (i) that both Regulation G and C&DIs are associated with an increase in the quality of non-GAAP earnings exclusions, (ii) a decline in the probability of meeting or slightly exceeding analysts' forecasts when firms exclude positive non-GAAP exclusions, and (iii) a reduction in the earnings response coefficients (ERCs) during the post-C&DIs period, but an increase in the post-Regulation G period. This study contributes to the voluntary disclosure literature by providing evidence on whether Regulation G and C&DIs have encouraged informative or opportunistic non-GAAP earnings. Furthermore, this study adds to the regulation literature by highlighting the unintended economic consequences of regulation by regulatory bodies.

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“…While there has been a decline in pro forma earnings releases, there is evidence that there has been an increase in the quality of other exclusions, i.e., more transitory items, and a decrease in the quality of special items (Kolev et al, 2008). This suggests earnings management may not necessarily have decreased, but rather managers have changed the way they manage earnings from managing accruals to managing real activities (Roychowdhury, 2006) Whether this is so is an empirical question.…”

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confidence: 99%

Comparative Value-Relevance of GAAP, IBES, S&P Core, Cash Earnings and Cash Flows

et al. 2013

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This study examines the impact the global financial crisis had on the value relevance of GAAP and non-GAAP earnings. We adopt the Ohlson (1995) valuation and CAR models to test the value relevance and information content of alternative earnings measures. We use six different earnings measures comprising IBES earnings, Standard & Poor's (S&P) core earnings, cash earnings, cash flows from operations, earnings from operations adjusted to exclude special items under GAAP and income before extraordinary items under GAAP. We draw our sample from US publicly traded firms between 2002 and 2010. Our sample is partitioned into Financial and non-Financial firms, and S&P 500 and non-S&P 500 firms. The results show that investors place greater value relevance on GAAP earnings during the GFC period relative to the pre-GFC period. INTRODUCTIONThere is much research on the information content and value relevance of earnings measures based on generally accepted accounting principles (GAAP) relative to non-GAAP measures.Prior research (Bradshaw and Sloan, 2002; Bhattacharya et al., 2003; Doyle et al., 2003;Lougee and Marquardt, 2004) finds that non-GAAP earnings (e.g., street, pro forma or IBES earnings) are significantly more value relevant and informative relative to GAAP earnings.Much of this evidence, however, is based on samples from before 2006, i.e., before the global financial crisis (GFC). Consequently, these studies do not investigate the impact of the GFC on the value relevance or informativeness of non-GAAP earnings relative to GAAP earnings. Albring et al. (2010), however, covers the period 2002 to 2007 in their study, which includes the beginning of the GFC. Nevertheless, they did not investigate the impact of the GFC. To the best of our knowledge, there is no research on the value relevance of these earnings metrics post-2006 after the GFC, during which period there is increased focus on the reliability of earnings information. Further, the GFC has created a climate of volatility and uncertainty in the capital market that may impact on how investors perceive the credibility and value relevance of earnings, and the sources from which they are produced. Prior to the GFC, there had been concerns with pro forma earnings, specifically with the quality of the information and the potential for it to be biased given management's vested interests. This led to the Securities and Exchange Commission (SEC) instituting regulations limiting the use of non-GAAP earnings metrics (SEC, 2001; SEC, 2002 Generally, pro forma earnings are produced by firms to supplement their reported GAAP earnings, while street and IBES earnings are produced by analysts. Non-GAAP earnings are generally more selective than GAAP earnings in that "other non-operating" items are excluded and these earnings are argued to better represent continuing performance. Bowen et al. (2005) provide evidence that firms tend to place greater relative emphasis on pro forma earnings when they have less value relevant GAAP earnings. Bhattacharya et al. (2003)...

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SEC Scrutiny and the Evolution of Non-GAAP Reporting

Cited by 258 publications

References 31 publications

Les mesures financières hors normes – La profession comptable pourrait bien détenir la solution

Les mesures financières hors normes – La profession comptable pourrait bien détenir la solution

Market Reaction to Non-GAAP Earnings Around SEC Regulation

Comparative Value-Relevance of GAAP, IBES, S&P Core, Cash Earnings and Cash Flows

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