The SEC says it’s finally cracking down on non-GAAP accounting. Wall Street companies have been using non-GAAP accounting since the 1990s. Now, only a couple of decades after it appeared, the SEC is springing into action to nip this non-GAAP fad in the bud.
GAAP is an acronym for “generally accepted accounting principles,” and non-GAAP earnings are a form of “alternative” earnings measures that a company feels better-represents its performance than GAAP measures do.
Unfortunately, companies can use non-GAAP metrics to mislead investors.
“The point is, now the company has created a measure that no longer reflects its business model,” SEC accountant Mark Kronforst explains.
“We’re going to take exception to that practice.”
One recent example of the type of difference that non-GAAP accounting can make is Alcoa Inc AA 0.2%’s earnings. The company reported a GAAP net income loss of $501 million over the last four quarters. However, thanks to “restructuring charges and other,” Alcoa reported a non-GAAP $532 million profit for the time period.
According to Benzinga Pro, rough estimates show the majority of S&P 500 companies now use non-GAAP metrics in some capacity.
An American Accounting Association report claims…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
