Reporting non-GAAP financial information


In September 2012, the Financial Markets Authority released their guidance note on the disclosure of non-GAAP financial information.  We believe this is a positive step towards ensuring more consistency and transparency in the reporting of information to investors.

The disclosure requirements are likely to add to the amount of content in media releases and other communications. Professional writing skills will be of even more importance to ensure that your key messages continue to stand out clearly.

Some key points and tips for businesses to note:

Include a reconciliation at least once in a document when using non-GAAP figures. Keep it simple, concise and use footnotes for more detailed descriptions. If needed, provide further details on your company website.

Non-GAAP information must be calculated consistently from period to period. If you are planning to start disclosing non-GAAP information, consider carefully what measures you want to use before you start, to avoid lengthy explanations and historical restating in future years.

Cannot be used to remove or hide bad news. Good investor relations practitioners should never try to hide bad news anyway! A professionally prepared communication should help you explain bad news and put forth your strategies to turn things around.

Internal Policy.  The FMA has also recommended that companies using non-GAAP financial information, have an internal policy, authorised by directors, that specifically addresses the consistency, completeness and accuracy of any adjustments made to reported GAAP measures.

While many directors may be signing off on the use of non-GAAP information, we believe there are very few that have an appropriate Board policy in place to support this.

We recommend Boards consider the following when preparing an internal policy:

- Identify and describe each non-GAAP financial measure which the company uses in its reporting, now and in the future

- Outline how these non-GAAP measures reconcile to GAAP reporting

- Statement from the Board, as to why it believes reporting these non-GAAP financial measures provides meaningful insights into the performance of the business

 Jackie Ellis at Ellis and Co is available to assist with ensuring your investor communcations and internal procedures are in line with FMA guidelines.