Regulation G – Life outside GAAP reporting
For many companies, it's that time of year again - earnings season!
Except this year things are different, as executives, who chose non-GAAP accounting measures, must be able to explain - to investors - the figures they publish.
For those companies who are due to report - choosing non-GAAP measurements - it's time to pay careful attention to 'Regulation G.' The regulation was implemented by the SEC following a string of high-profile accounting scandals and the ubiquitous consequences of the Sarbanes-Oxley Act.
Specifically, Regulation G governs the presentation of pro forma financial information in earnings releases and similar public announcements. Companies are now required to also furnish numbers that comply with generally accepted accounting principles (GAAP). As a result, whenever a company discloses or releases material information that includes pro forma information, it needs to reconcile the difference between the pro forma and GAAP numbers.
Companies can find themselves hampered with reconciliation difficulties, especially those than choose to post non-GAAP figures, as they will undoubtedly need to quantify any such figures with in-depth reconciliation information.
Many corporates now choose to highlight the non-GAAP figures early on, as Dianne Douglas, vice-president at Mattel Inc.