As reported in this Reuters article, recent statements by Corp Fin Director Hinman say the SEC won’t be writing new rules to require public companies to explain why and how they use adjusted or non-GAAP financial measures in the CD&A.
Last spring, Liz wrote about how CII had filed a petition with the SEC recommending changes to Item 402 that would require all non-GAAP financial measures presented in the CD&A be subject to Reg G and Item 10(e). CII filed the petition after SEC Commissioner Rob Jackson had co-authored a WSJ opinion piece calling for increased transparency about the use of non-GAAP measures in setting executive pay.
The Reuters article high-lights some of Director Hinman’s remarks made at a December 2019 AICPA conference. Here’s an excerpt:
“The CD&A is excluded from having to reconcile non-GAAP numbers, but we do in the rule ask people to show how you get to that number if it’s a non-GAAP number. You don’t have to do the full reconciliation; many times people will sort of cross-reference the reconciliation. We would encourage people to, you know, when they are using [non-GAAP] … to provide at least how they got there. The method of calculation is it’s what the rule says. It’s not reconciliation but it’s pretty close.”
-Lynn Jokela, CompensationStandards.com February 10, 2020
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