On December 13, 2022, the Securities and Exchange Commission (SEC) announced changes with respect to the monitoring of non-GAAP (Generally Accepted Accounting Principles) financial measures in SEC filings. The SEC issued seven new or revised Compliance and Disclosure Interpretations (C&DIs) focusing on these financial measures. You can find further details on this here.
This shift in policy typically signals that a particular subject will come under greater scrutiny in SEC comment letters and enforcement actions, according to the law firm Bass, Berry & Sims PLC.
Questions remain among legal professionals about what this might mean for corporations and law firms, particularly those with a significant presence in international markets where non-GAAP financial measures are commonplace. How much rigor will the SEC apply in enforcing these new interpretations? And what sort of impacts might this have on companies’ existing strategies for financial disclosure?
Given how widely non-GAAP measures are used by companies–many find them to be an effective tool for showcasing company performance and potential–any substantial changes in the SEC’s enforcement approach could carry widespread consequences. Both corporations and their legal teams should keep an eye on further reactions to these SEC interpretations.
A detailed exploration of the potential implications of this SEC move should be a forthcoming point of interest as legal professionals grapple with these potentially significant changes.