AICPA Comments on SEC's Proposed Rule on Conditions for Non-GAAP Financial Measures.

Business Editors

WASHINGTON--(BUSINESS WIRE)--Dec. 17, 2002

The American Institute of Certified Public Accountants (AICPA) has submitted comments to the SEC on Regulation G, the SEC's proposed rule regarding conditions for use of non-GAAP financial measures, and its proposed amendments to Regulation S-K, Regulation S-B, and Form 20-F.

In its filing, the AICPA agreed with the Commission's efforts to reconcile non-GAAP financial information to the most comparable financial measure, thus providing users of financial statements with better quality, transparency and understanding of non-GAAP financial information. Specifically, the AICPA believes Regulation G should apply to all U.S. companies that publicly disclose non-GAAP financial measures.

Proposed Regulation G

Auditor Association with Non-GAAP Measures

The AICPA suggested the SEC minimize investor confusion by explicitly stating in its proposed rules that the company's independent accountant need not audit the reconciliation. The AICPA said it believes that investors are under the impression that the auditor was associated with the pro forma data and has approved the pro forma adjustments as "proper." To eliminate continued misunderstanding, the AICPA suggested issuers of financial statements be required to label the non-GAAP data as "unaudited" and to disclose that such information had not been reviewed or examined by their auditors.

Transition Period

In its comments, the AICPA noted that the Commission's proposed rule does not offer an effective date. The AICPA recommended the proposed rule become effective shortly after the rule becomes final because it incorporates current best practices and should not present significant transition challenges to issuers. However, in the case of Item 10 of Regulations S-K and S-B, the AICPA suggested delaying the effective date because amendments to the item could prohibit disclosure of certain non-GAAP financial measures. The delayed effective date will provide issuers time to modify existing agreements in advance.

Limited Exception for Foreign Private Issuers

The AICPA requested clarification from the SEC on the proposed rule's provision for a limited exception for foreign private issuers if certain conditions are met. The AICPA commented that due to the increased uses of faxes and email, communications are much less hindered by national borders and suggested that the rule specifically address a situation in which, for example, a non-U.S. company issues a press release to a news source physically located outside the U.S. for which it is expected that the information will be distributed in the U.S.

Further, the AICPA commented it did not believe that eliminating the limited exception for foreign private issuers would deprive U.S. investors of non-GAAP financial measures. To reduce possible investor confusion, the AICPA offered two possible suggestions for the Commission to consider. First, that non-U.S. issuers be required to disclose the national set of generally accepted accounting principles that are the basis for its non-GAAP measure. Second, that issuers be required to provide disclosures stipulated by Regulation G at the time that a press release containing a non-GAAP measure is issued. The AICPA also suggested that the SEC consider expanding the requirements of Regulation G to indicate that non-GAAP disclosures be reconciled with the issuer's national GAAP instead of U.S. GAAP.

Proposed Amendments to Item 10 of Regulation S-K, Item 10 of Regulation S-B and Form 20-F

Non-GAAP Per Share Measures

The SEC's proposed rule would prohibit the reporting of non-GAAP per share measures. The AICPA expressed concern about the potential for exploitation of alternative non-GAAP per share measures, or the possibility of confusion or misunderstanding by users with the existence of various per share measures. However, the AICPA said it also recognized that certain alternative per share measures could provide some users with additional meaningful earnings data. The Commission should consider both the potential risks and benefits such information may provide to investors. If in the final rule the Commission decides to permit companies to report certain non-GAAP per share measures, the AICPA said it strongly recommends such measures be accompanied by a required reconciliation to the most directly comparable GAAP per share measures.

The AICPA is the largest professional association of certified public accountants in the United States, with more than 350,000 members in business, industry, public practice, government and education.

Note to Editors: A copy of the comment letter is available at: http://www.aicpa.org/download/sarbanes/Pro-Forma-121302.pdf