Keywords: CAQ, ICFR, Center, Audit, Quality, GAAP, Roadmap, Committees
The Center for Audit Quality (CAQ) recently published "Non-GAAP Measures: A Roadmap for Audit Committees" (CAQ Roadmap), which examines themes that emerged from a series of 2017 roundtables hosted by CAQ with various stakeholders. The CAQ publication notes that audit committees have an important responsibility to oversee the financial reporting process and external audit.
The CAQ report notes that the audit committee can act as a bridge between management and investors, assess management's reasons for presenting non-GAAP measures and evaluate the sufficiency of related disclosures. It adds that the audit committee can determine whether the measures present a fair and balanced view of company performance. CAQ lays out a three-fold roadmap for audit committee members: (1) identify key discussion topics with management, counsel and external auditors, (2) understand the external auditor's role regarding non-GAAP measures and (3) adopt leading practices to support the presentation of high-quality non-GAAP measures. With respect to item (1), CAQ suggests that audit committee members consider topics for dialogue including: asking management whether it has internal guidelines for determining how non-GAAP measures are generated, calculated and presented; seeking the perspective of counsel on non-GAAP measures; asking the company to benchmark such measures to those of its peers; and finding out what disclosure controls and procedures are in place. With respect to item (2), while external auditors do not audit non-GAAP measures as part of their financial statement or ICFR audits, audit committees and management may consider external auditors as a resource when evaluating such measures and may ask them to perform certain procedures, such as testing controls related to the preparation and use of such measures in light of management's polices, and to report such results to them. Last, the audit committee and management should consider adopting best practices, such as subjecting non-GAAP measures to robust disclosure controls, and adopting guidelines to follow when preparing and presenting non-GAAP measures to stakeholders.
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