Close X
Attorney Spotlight

Find out which two countries Cheryl Palmeri gets the most questions about related to International Trade in today's market? Find out more>


Close X


Search our Experience

Experience Spotlight

In June 2016, AmSurg Corp. and Envision Healthcare Holdings, Inc. (Envision) announced they have signed a definitive merger agreement pursuant to which the companies will combine in an all-stock transaction. Upon completion of the merger, which is expected to be tax-free to the shareholders of both organizations, the combined company will be named Envision Healthcare Corporation and co-headquartered in Nashville, Tennessee and Greenwood Village, Colorado. The company's common stock is expected to trade on the New York Stock Exchange under the ticker symbol: EVHC. Bass, Berry & Sims served as lead counsel on the transaction, led by Jim Jenkins. Read more.

AmSurg logo

Close X

Thought Leadership

Enter your search terms in the relevant box(es) below to search for specific Thought Leadership.
To see a recent listing of Thought Leadership, click the blue Search button below.

Thought Leadership Spotlight

Inside the FCA blogInside the FCA blog features ongoing updates related to the False Claims Act (FCA), including insight on the latest legal decisions, regulatory developments and FCA settlements. The blog provides timely updates for corporate boards, directors, compliance managers, general counsel and other parties interested in the organizational impact and legal developments stemming from issues potentially giving rise to FCA liability.

Read More >

SEC Staff Releases New Guidance on Non-GAAP Financial Measures

Firm Publication


June 1, 2016

On May 17, 2016, the Staff of the SEC issued new and revised guidance with respect to the use of non-GAAP financial measures that we anticipate will have a significant impact on the use of non-GAAP financial measures by many public companies, particularly with respect to earnings releases. The interpretive guidance comes after growing concern voiced by SEC officials and Staff on what they believe to be the inappropriate use and presentation of non-GAAP measures. The guidance touches on a range of issues, including:

  • What kinds of adjustments or practices could be misleading;
  • Non-GAAP revenue recognition disclosures; 
  • "Funds from operations" (or FFO) presentations;
  • Presenting corresponding GAAP measures with "equal or greater prominence" when required;
  • Prohibited per share non-GAAP liquidity measures; and
  • The treatment of income tax effects related to adjustments.

To review the SEC's interpretive guidance, click here.

Renewed Focus on "Equal or Greater Prominence"

Item 10(e) of Regulation S-K requires that when a company presents a non-GAAP measure it must present the most directly comparable GAAP measure with equal or greater prominence. This equal prominence requirement applies to non-GAAP measures presented in documents filed with the SEC and also earnings releases furnished under Item 2.02 of Form 8-K. The new guidance provides that the Staff would consider the following examples of disclosure of non-GAAP measures as more prominent:

  • Presenting a full income statement of non-GAAP measures or presenting a full non-GAAP income statement when reconciling non-GAAP measures to the most directly comparable GAAP measures;
  • Omitting comparable GAAP measures from an earnings release headline or caption that includes non-GAAP measures;
  • Presenting a non-GAAP measure using a style of presentation (e.g., bold, larger font) that emphasizes the non-GAAP measure over the comparable GAAP measure;
  • A non-GAAP measure that precedes the most directly comparable GAAP measure (including in an earnings release headline or caption);
  • Describing a non-GAAP measure as, for example, "record performance" or "exceptional" without at least an equally prominent descriptive characterization of the comparable GAAP measure;
  • Providing tabular disclosure of non-GAAP financial measures without preceding it with an equally prominent tabular disclosure of the comparable GAAP measures or including the comparable GAAP measures in the same table;
  • Excluding a quantitative reconciliation with respect to a forward-looking non-GAAP measure in reliance on the "unreasonable efforts" exception in Item 10(e)(1)(i)(B) without disclosing that fact and identifying the information that is unavailable and its probable significance in a location of equal or greater prominence; and
  • Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence.
Misleading Non-GAAP Financial Measures

The guidance also sets forth several Staff positions which are intended to make clear that certain non-GAAP adjustments may be misleading even if they are not specifically prohibited under the SEC's non-GAAP rules. For example, the guidance emphasizes that a non-GAAP measure may be misleading if it is presented inconsistently between periods, or if the non-GAAP measure excludes charges, but does not exclude gains. The Staff's renewed focus on the potential for non-GAAP measures to be misleading follows the announcement by the SEC in 2013 of the creation of a new accounting-fraud task force intended to scrutinize the use of non-GAAP financial measures with the potential for this task force to "incubate" potential enforcement actions.

Revenue-Related Non-GAAP Financial Measures

This guidance also reflects the Staff's particular focus of late on non-GAAP revenue measures. In this regard, the guidance states that "[n]on-GAAP measures that substitute individually tailored revenue recognition and measurement methods for those of GAAP" could violate the non-GAAP anti-fraud rules. In addition, in a speech in early May, the SEC's Deputy Chief Accountant criticized the use of non-GAAP revenue measures by public companies, stating that companies "will likely get a comment" if they present a revenue-related non-GAAP measure and that the Staff would "look closely, and skeptically, at the explanation as to why the revenue adjustment is appropriate."


While much of the guidance is not altogether surprising in light of recent statements by SEC officials and Staff and increased recent public criticism of the use of non-GAAP financial measures by U.S. public companies, there are also areas where the Staff has provided specific guidance that was previously lacking. In particular, with respect to the new equal prominence guidance, the current practice of many public companies does not fully comply with various aspects of the guidance as summarized above. In addition, public companies disclosing non-GAAP revenue-related measures should be mindful of the guidance and recent public statements by the Staff questioning the use of such revenue-related measures.

We expect the Staff will continue focusing on non-GAAP disclosures and continue to increase its number of comments in this area in light of this new interpretive guidance and other recent developments. In addition, while the Staff has historically focused on the review of earnings releases and investor materials presented on company websites as part of the Staff's SEC comment letter process, the Staff has indicated that it is more actively reviewing these forms of public disclosures by public companies. It is also possible that there will be some enforcement activity in the non-GAAP financial measure area in light of the developments noted above.

For examples of recent Staff comments in the non-GAAP financial measure area, the comments below are from a Staff comment letter to a public company which was recently made public on EDGAR (see the SEC Comment letter link and the company's initial response letter link):

SEC Comment: Please revise to give equal prominence to your GAAP financial measures. For example, although you disclosed GAAP earnings per share prior to non-GAAP earnings per share in the 2015 Third Quarter Results section, you disclose the percentage increase in your non-GAAP earnings per share without disclosing that GAAP earnings per share declined 83% from the prior year. Refer to Item 10(e)(1)(i)(A) of Regulation S-K and Instruction 2 to Item 2.02 of Form 8-K.

SEC Comment: Given that you present fourth quarter and full year 2015 guidance for your non-GAAP measures, please reconcile these measures to your most directly comparable GAAP measures or explain to us why you cannot provide that information without unreasonable effort as stipulated in Item 10(e)(1)(i)(B) of Regulation S-K.

Fortunately, the guidance comes at the end of the first quarter reporting season. Prior to the next reporting cycle, we recommend that all public companies that disclose non-GAAP financial measures take a fresh look at their disclosures, including earnings releases, investor decks, IR websites and SEC filings, and consider whether adjustments should be made in response to these developments.

Related Professionals

Related Services


Visiting, or interacting with, this website does not constitute an attorney-client relationship. Although we are always interested in hearing from visitors to our website, we cannot accept representation on a new matter from either existing clients or new clients until we know that we do not have a conflict of interest that would prevent us from doing so. Therefore, please do not send us any information about any new matter that may involve a potential legal representation until we have confirmed that a conflict of interest does not exist and we have expressly agreed in writing to the representation. Until there is such an agreement, we will not be deemed to have given you any advice, any information you send may not be deemed privileged and confidential, and we may be able to represent adverse parties.