Accounting’s Tower of Babel: Key Considerations in Assessing Non-GAAP Earnings

The increasingly pervasive reporting of non-GAAP earnings poses fundamental challenges for investors and analysts. Non-GAAP earnings lack comparability, and related disclosures lack sufficient transparency to add comparability. In addition, non-GAAP earnings disclosures may raise potentially troubling questions about management’s motivation. We incorporate relevant research in our discussion and conclude with key prescriptions in assessing non-GAAP earnings. Disclosure: One of the authors is the publisher of The Analyst’s Accounting Observer, and we refer to certain data from that publication, as indicated where appropriate. Editor’s Notes: This article was externally reviewed using our double-blind peer-review process. When the article was accepted for publication, the authors thanked the reviewers in their acknowledgments. Alok Kumar Agarwal, CFA, and Stephen R. Foerster, CFA, were two of the reviewers for this article. Submitted 1 December 2015 Accepted 21 November 2016 by Stephen J. Brown