Non-GAAP Reporting: Evidence from Academia and Current Practice

Abstract

The number of firms reporting earnings on a non-GAAP basis has dramatically increased over the past decade, and non-GAAP reporting is now commonplace in capital markets. This proliferation of non-GAAP reporting has renewed both regulators’ and standard setters’ interest in these alternative performance metrics. For example, the SEC, FASB, and IASB have all recently questioned what this increasing reporting trend means for IFRS- and U.S.-GAAP-based reporting and whether these measures are misleading to investors. This increasing focus on non-GAAP metrics motivates us to synthesize the nearly two decades of research on non-GAAP reporting to provide insights on what academics have learned to date about this reporting practice. Then, we utilize a novel dataset of detailed non-GAAP disclosures to provide new descriptive evidence on current trends in non-GAAP reporting and its recent proliferation. Finally, we discuss important questions for future researchers to consider in moving the literature forward.

Keywords: Non-GAAP earnings, regulation, standard setting

JEL Classification: M40, M41, M48