{"id":1382,"date":"2018-11-05T09:29:45","date_gmt":"2018-11-05T14:29:45","guid":{"rendered":"https:\/\/seci.wpenginepowered.com\/?p=1382"},"modified":"2018-11-05T09:29:45","modified_gmt":"2018-11-05T14:29:45","slug":"a-bit-of-trivia-some-terminology-and-an-sec-comment-pro-forma-versus-non-gaap","status":"publish","type":"post","link":"https:\/\/seciblog.pli.edu\/index.php\/a-bit-of-trivia-some-terminology-and-an-sec-comment-pro-forma-versus-non-gaap\/","title":{"rendered":"A Bit of Trivia, Some Terminology and an SEC Comment- Pro-Forma Versus Non-GAAP"},"content":{"rendered":"

Thanks to Gary Brown, Partner at \u00a0Nelson Mullins Riley & Scarborough LLP<\/strong>, who is also a workshop leader and speaker here at PLI, for finding the comment below and planting the seed for this post!<\/p>\n

Way back when, in the days before Sarbanes-Oxley (and yes, that really is way back when!), the SEC was concerned about the use of what was then called \u201cpro-forma\u201d information.\u00a0 The term \u201cpro-forma\u201d was used to describe information that started with GAAP measures which were then \u201cadjusted\u201d to present what companies maintained (or perhaps hoped), was more relevant information to investors.<\/p>\n

In those pre-SOX days the SEC was concerned that such \u201cpro-forma\u201d presentations could be misleading.\u00a0For example, some companies would maintain that presenting operating results with the impact of restructuring charges removed was a better way to evaluate the future earnings potential of a business.\u00a0 This may be the case, but some companies that had restructuring charges every year, and sometimes in multiple quarters within a year, would present such measures in this fashion.\u00a0 Clearly such a presentation could be misleading.<\/p>\n

In response to this situation Congress, in the Sarbanes-Oxley Act, gave the SEC the power and responsibility to regulate the use of such measures.\u00a0 Here is where the terminology had to be clarified.\u00a0 Companies, in their earnings releases, would use the term \u201cpro-forma\u201d when presenting such adjusted measures.\u00a0 However, the SEC\u2019s guidance already used this term, particularly in Regulation S-X Article 11.\u00a0 As a result, the SEC had to create new terminology.<\/p>\n

This Final Rule for the use of Non-GAAP measures<\/a>\u00a0was effective on March 28, 2003.\u00a0 It is where the pendulum of non-GAAP guidance started swinging back and forth, and is still a great summary of both Regulation G<\/a>(applicable to any presentation anywhere of a non-GAAP measure) andS-K Item 10(e)<\/a>(for presentations in filed documents).\u00a0 If you read footnote 12<\/a>in the Final Rule you will see this language:<\/p>\n

Section 401(b) of the Sarbanes-Oxley Act directs the Commission to adopt rules concerning the public disclosure or release of “pro forma financial information” by a company filing reports under Section 13(a) [15 U.S.C. \u00a7 78m(a)] or 15(d) [15 U.S.C. \u00a7 780(d)]. Because the Commission’s rules and regulations address the use of “pro forma financial information” in other contexts, particularly in Regulation S-X, and use that term differently from its use in the Sarbanes-Oxley Act, we are adopting the term “non-GAAP financial measures” to identify the types of information targeted by Section 401(b) of the Sarbanes-Oxley Act.<\/p>\n

Why all this historical trivia?\u00a0 Check out this comment from an August 22, 2018 comment letter:<\/p>\n

Selected Historical Consolidated Financial and Other Data<\/strong>\u00a0<\/strong><\/p>\n

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures, page 17 <\/strong><\/p>\n

1. \u00a0We note that you have titled several of your non-GAAP measures as \u201cpro forma.\u201d Based on the information in the filing, it does not appear that this information is pro forma financial information based on the guidance in Article 11 of Regulation S-X. If true, please revise your presentation to more clearly present your non-GAAP measures eliminating the use of the words pro forma.<\/p>\n

As always, your thoughts and comments are welcome!<\/p>\n","protected":false},"excerpt":{"rendered":"

Thanks to Gary Brown, Partner at \u00a0Nelson Mullins Riley & Scarborough LLP, who is also a workshop leader and speaker here at PLI, for finding the comment below and planting the seed for this post! Way back when, in the days before Sarbanes-Oxley (and yes, that really is way back when!), the SEC was concerned … Continue reading A Bit of Trivia, Some Terminology and an SEC Comment- Pro-Forma Versus Non-GAAP<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[242],"tags":[],"coauthors":[154],"class_list":["post-1382","post","type-post","status-publish","format-standard","hentry","category-reporting"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts\/1382","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/comments?post=1382"}],"version-history":[{"count":0,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts\/1382\/revisions"}],"wp:attachment":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/media?parent=1382"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/categories?post=1382"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/tags?post=1382"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/coauthors?post=1382"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}