Not all companies follow U.S. generally accepted accounting principles (GAAP). Many smaller businesses, for example, have adopted the AICPA’s Financial Reporting Framework for Small and Medium-Sized Entities because it’s easier to follow. Other businesses may use non-GAAP measures because they don’t believe GAAP provides readers of financial reports with enough information to make informed decisions. Non-GAAP accounting is, in a nutshell, any measure a company uses that relies on a methodology not included in GAAP. But not all measures are necessarily created equal. Some non-GAAP measures can be misleading, and have the potential to mislead investors, lenders and the public. History lesson Historically, U.S. companies have used non-GAAP measures sparingly. Yet according to financial data provider Audit Analytics, in 2017, 97% of financial statements produced by S&P 500...
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Jun 2020
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