According to a recent article published by Bloomberg, the U.S. Securities and Exchange Commission (SEC) is once again focusing its attention on ensuring organisations do not overly inflate earnings or overly emphasise optimistic results. This scrutiny seemingly arises from corporate reporting habits wherein certain undesirable elements are deliberately excluded, colloquially referred to as “earnings before bad stuff.”
One of the companies under the SEC’s lens is the multinational retail corporation Kohl’s Corp., which reportedly played down its rent costs when declaring its annual results for 2023. The Bloomberg report suggests that the SEC found it strange for a retailer, for whom store rent can be a significant expenditure, to treat the rent as an irregular or one-time cost.
In their attempt to maintain the transparency and accuracy of financial disclosure, the SEC has been sending out inquiries and requests for information to several enterprises. Others named besides Kohl’s Corp. include Accenture, Hormel, and 1-800-Flowers.
The SEC’s ongoing effort to monitor such non-GAAP (Generally Accepted Accounting Principles) measures seem to persist due to repeated and unresolved questions around their use. This scrutiny carries potential legal implications for organizations found to be obscuring their true financial status, and their legal departments and counsel will likely be reviewing disclosure practices to ensure compliance.