The International Organization of Securities Commissions (IOSCO) released new guidance on Tuesday designed to help issuers provide accurate, useful disclosure to investors when using financial measures that don’t follow generally accepted accounting principles (GAAP).
“Non-GAAP financial measures can be useful to issuers and investors because they can provide additional insight into an issuer’s financial performance, financial condition and/or cash flow,” IOSCO notes, adding that these non-standard measures also give issuers some flexibility in communicating useful, entity-specific information.
However, IOSCO also notes that “problems can arise… when non-GAAP financial measures are presented inconsistently, defined inadequately, or obscure financial results determined in accordance with GAAP.”
In addition, it’s difficult to compare results from different issuers, as these measures typically lack standard definitions, IOSCO says.
In its guidance, IOSCO aims to deal with the concerns about using non-GAAP measures by setting out 12 elements that “compose a frame of reference for the disclosure of non-GAAP financial measures.”
By using these elements, IOSCO says that issuers can “contribute to the reliability and comparability over time of non-GAAP financial measures and reduce the potential for misleading disclosure.”