Audit Expert Says Non-GAAP Measures Help a Company Tell its Unique Story

Cindy Fornelli, executive director at the Center for Audit Quality (CAQ), participated in a video interview at Nareit's REITwise: 2018 Law, Accounting & Finance Conference in Hollywood, Florida.

The CAQ recently held roundtables on the use of non-Generally Accepted Accounting Principles (GAAP) standards to find out what drives companies to use these measures to tell their stories. Participants included stakeholders such as investors, audit committee members, preparers and auditors.

Companies are hearing from analysts that they are interested in information through non-GAAP measures, as well as the GAAP financial statements, Fornelli said. “What investors struggle with is comparability,” she noted. For management, the challenge comes from complying with Securities and Exchange Commission (SEC) guidance on how to present non-GAAP measures. And audit committees, meanwhile, want more input on how their companies compare with peer groups, according to Fornelli.

Fornelli said that while investors use GAAP measures in financial statements as a baseline to get an idea about a company’s health, they want something beyond that. Thus, non-GAAP measures, as well as key performance indicators, help investors learn something more—and help the company tell its story.

The REIT sector is the only one that has some standardization around the use of non-GAAP financial measures, and the SEC has acknowledged the REIT industry’s efforts, Fornelli explained.