GAAP-adjusted earnings disclosures by New Zealand companies

Purpose - – This paper aims to examine motivations for the reporting of generally accepted accounting practice (GAAP)-adjusted earnings by New Zealand companies. Design/methodology/approach - – The study uses multivariate analysis of data from New Zealand company annual reports for the period from 2004 to 2012. Findings - – Evidence suggests that management of some New Zealand firms are motivated to use GAAP-adjusted earnings to provide a more favourable impression of earnings. However, across firms, these adjusted earnings provide a better predictor of future earnings and provide more value-relevant information to the market than GAAP earnings. Thus, a desire to disclose a more accurate indicator of permanent earnings appears to be a strong factor in the reporting of GAAP-adjusted earnings. Research limitations/implications - – The study uses firms listed on the New Zealand share market. The number of firms examined is small, but we compensate by studying the entire population, thus avoiding sampling issues. The results suggest that New Zealand’s regulatory response of recommending guidelines for reporting alternative earnings measures is appropriate. Originality/value - – The study contributes to the literature on the relationship between reporting statutory earnings and non-GAAP earnings. It uses a period that includes three major events in the New Zealand economy and reporting environment: the adoption of international financial reporting standards, a change in tax law and the global financial crisis. Recognition of these events allows us to better interpret the GAAP-adjusted reporting practices taken by managers.