On 16 March 2018, the Center for Audit Quality (CAQ) published Non-GAAP Measures: A Roadmap for Audit Committees (Roadmap) to serve as a guide to audit committees on advancing their oversight and involvement with non-GAAP financial measures. The Roadmap presents themes that emerged at a series of 2017 roundtable discussions held by the CAQ and attended by a variety of stakeholders, including audit committee members, management, investors, securities lawyers and public company auditors. The Roadmap suggests that audit committees should:

  • Put themselves in the investors' shoes when evaluating if the presented non-GAAP measures and related disclosures align with the company's overall strategy and performance;
  • Engage with investors directly or through investor relations to ensure that the presented non-GAAP measures aid investors' understanding of the company's performance;
  • Ask management whether it has an internal policy that provides guidelines for determining how non-GAAP measures are generated, calculated and presented, including the rationale for the measures and adjustments that it presents and excludes. If there is no policy, encourage management to create one;
  • Discuss with management how the company makes changes to non-GAAP measures it presents, and the rationale for why it would or would not make changes;
  • Seek the perspective of counsel on non-GAAP measures;
  • Ask the company to compare or to benchmark its non-GAAP measures to those of its peers;
  • Find out what disclosure controls and procedures are in place as they relate to the information that is presented and disclosed; and
  • Ask the external auditors what their responsibilities are for non-GAAP measures, including whether the measures are consistent with the auditors' understanding and knowledge of the company's performance.

In addition, the Roadmap identified the following as some of the leading and recommended practices that companies have instituted to support their presentation of appropriate non-GAAP financial measures:

  • Disclosure controls: Companies should strive to establish robust disclosure controls specific to non-GAAP financial measures as this will help mitigate risks and support sound decision-making about the reporting of non-GAAP measures. The disclosure controls should be documented and should facilitate their testing;
  • Non-GAAP policies: Management should have policies and guidelines in place to guide the preparation and presentation of non-GAAP financial measures with a view to promoting consistency in how the measures are presented and calculated; and
  • Audit committee disclosure: Companies may benefit from their audit committee making disclosure regarding the existence of non-GAAP policies (even if the policies themselves are not disclosed) as this could serve as helpful evidence for investors that the company has adequate policies to ensure the non-GAAP financial measures are used consistently, transparently and comparably.

The Roadmap is available at:

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