NACD Audit Committee Chair Advisory Council: Audit Committee Oversight of Non-GAAP Financial Measures

In brief: Regulators and the media have sharpened their focus on expanding the use of financial metrics not based on Generally Accepted Accounting Principles (GAAP). Companies may use non-GAAP metrics to supplement reported earnings with relevant information for shareholders about the company’s performance.

At a recent meeting of the NACD Audit Committee Chair Advisory Council, Fortune 500 directors discussed board and committee roles in the oversight of non-GAAP financial measures. The discussion revealed several questions audit committee members should consider, including:

• What is management’s rationale for using a given non-GAAP financial metric, and do we agree with it?
• How do non-GAAP measures influence compensation plan design and incentive calculations?

This resource can help your board:

• Engage with management in discussions about non-GAAP metrics.
• Consider whether non-GAAP metrics are reported in a way that is both transparent and consistent.

Most relevant audiences: Audit committee members