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  • Daniel Goelzer

Audit Committees and Non-GAAP Measures–PWC’s Recommendations

Non-GAAP measures: The role of the audit committee is PWC’s primer for audit committees on non-GAAP measures, including suggested questions that committees should raise concerning their use. (For other perspectives on audit committee oversight of non-GAAP measures, see SEC Chief Accountant Outlines Audit Committee’s Non-GAAP Oversight Role (Again), April-May 2018 Update and CAQ Adds Another Chapter to its Audit Committee Non-GAAP Guidance, March 2018 Update.)


Non-GAAP measures adjust a company’s operating performance, financial position, or cash flows by excluding or including amounts from the most directly comparable measure based on generally accepted accounting principles (GAAP). As noted in the PWC paper, nearly all S&P 500 companies include at least one non-GAAP measure in their regulatory filings, earnings release, and other company disclosures, and investors increasingly evaluate companies based on such measures. “Given the ongoing global disruptions associated with the pandemic, other world events, and an overall uncertain global economic environment, more companies may consider non-GAAP adjustments to give effect to infrequent or unusual gains or charges.”


PWC’s publication discusses common non-GAAP financial measures, SEC rules around non-GAAP measures and common issues concerning these measures raised in SEC comment letters, and differences between non-GAAP measures and key performance indicators (KPIs). PWC concludes with a list of 19 questions that audit committees may want to ask management in fulfilling their oversight responsibilities with respect to non-GAAP measures. These questions are grouped under six headings:

  • Why has management chosen to present the non-GAAP measure?

  • What is management’s process to calculate the non-GAAP measure?

  • What are the incentives for possible “earnings management”?

  • Is the presentation and disclosure fair, balanced, and transparent?

  • Do the measures comply with the SEC regulations and the SEC staff’s 2018 interpretive guidance?

  • Are KPIs clearly defined and appropriately disclosed?


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