From an investor perspective, the need to understand IFRS is arguably even greater. The accounting principles assume that businesses will continue to function eternally and have no end date as such. But the SEC still continues to have enforcement powers.
Non-GAAP figures usually exclude irregular or noncash expenses, such as those related to acquisitions, restructuring or one-time balance sheet adjustments. This smooths out high earnings volatility that can result from temporary conditions, providing a clearer picture of the ongoing business. Forward-looking statements are important because valuations are largely based on anticipated cash flows.
However, non-GAAP figures are developed by the reporting company, so they may be subject to situations in which the incentives of shareholders and corporate management are not aligned.
Studies have shown that adjusted figures are more likely to back out losses than gains, suggesting that management teams are willing to abandon consistency to foster investor optimism. Much of this can be attributed to turmoil in commodity and currency markets, which heavily distorted GAAP earnings in several industries. Concerns over reporting practices reached beyond the impacts of slumping energy prices as Equifax Inc.
Investors forced to choose a side as the two diverge should consider the specific exclusions in adjusted figures, and personal economic outlook is also important. The divergence of non-GAAP figures is due largely to commodity and energy price turmoil, so investors with bullish outlooks on the rebound are more likely to find value in non-GAAP figures than those who expect commodities to remain depressed. Companies that consistently purchase smaller firms and intend to sustain this acquisitive strategy often exclude certain acquisition-related costs that remain a material ongoing expense to the business but should not be overlooked.
Studies have suggested that the exclusion of stock-based compensation from earnings results materially reduces the predictive power of analyst forecasts, so non-GAAP figures that merely adjust for equity compensation are less likely to provide actionable data. However, non-GAAP results from responsible firms grant investors unparalleled insight into the methodology employed by management teams as they analyze their own companies and plan future operations.
Under Rule Departures from Established Accounting Principles, the departures are rare, and usually take place when there is new legislation, the evolution of new forms of business transactions, an unusual degree of materiality, or the existence of conflicting industry practices.
The Codification is effective for interim and annual periods ending after September 15, All other accounting literature not included in the Codification is nonauthoritative. The Codification reorganizes the thousands of U. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. It also includes relevant Securities and Exchange Commission SEC , guidance that follows the same topical structure in separate sections in the Codification.
To prepare users for the change, the AICPA  has provided a number of tools and training resources. While the Codification does not change GAAP, it introduces a new structure—one that is organized in an easily accessible, user-friendly online research system.
The FASB expects that the new system will reduce the amount of time and effort required to research an accounting issue, mitigate the risk of noncompliance with standards through improved usability of the literature, provide accurate information with real-time updates as new standards are released, and assist the FASB with the research efforts required during the standard-setting process. From Wikipedia, the free encyclopedia.
Financial Internal Firms Report. Accountants Accounting organizations Luca Pacioli. Accounting standard International Financial Reporting Standards Other comprehensive basis of accounting Philosophy of accounting Statutory accounting principles for US insurance companies.
Current situation and next steps" , pwc. Governmental Accounting, Auditing, and Financial Reporting. The Wall Street Journal.