The Role of Auditors in Non-GAAP Financial Measures and Key Performance Indicators: Present and Future

September 29, 2020

Published: The CAQ


Investors and other users of financial information are increasingly consuming information outside of the audited financial statements to inform capital allocation and other decisions. In December 2019, the Center for Audit Quality (CAQ) released a publication, The Role of Auditors in Company Prepared Information: Present and Future, that provides a foundational understanding of the current role of auditors in various types of company-prepared and publicly disclosed information, and how auditors are positioned to help fill existing gaps in enhancing the reliability of decision-useful information.

Typically, public companies in the United States prepare their financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Non-GAAP financial measures provide companies the flexibility to supplement their GAAP results with disclosures presented “through the eyes of management.” Many companies are disclosing these types of measures in their filings with the U.S Securities Exchange Commission (SEC) and other company-prepared and publicly disclosed materials.

Non-GAAP financial measures are used by various stakeholders for several reasons, including valuing companies, determining executive compensation, and as a means of communicating a company’s individual story or business strategy. Similarly, key performance indicators (KPIs) are disclosed by management to provide additional insights into the company’s performance or operations. In times of uncertainty and market volatility, these measures may become increasingly useful to a company’s ability to communicate supplemental information to investors and other stakeholders.

Users of this information should understand the rules and regulations applicable to companies that choose to provide this information to the public and what may impact the utility of this information. In this publication, we provide an overview of what non-GAAP financial measures and KPIs are, how they are used, and how the auditor could play a greater role in this information. We also present key questions audit committee members can ask as they discuss this information with management and auditors, as well as questions investors may want to consider as they use non-GAAP financial measures and KPIs to make decisions.

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