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Non-GAAP Disclosures and Implications for Marketing

An interesting phenomenon has emerged over recent years in financial accounting which could prove relevant to marketing. This is non-GAAP reporting by companies. What is, could be, the relatonshp between marketing and Non-GAAP disclosures.

GAAP: Generally Accepted Accounting Principles

The rules of external financial reporting, Generally Accepted Accounting Principles, are known as GAAP. Non-GAAP reporting covers companies supplying information not sanctioned by teh official accounting rules. The idea of non-GAAP reporting originated in the US. Still non-GAAP discloures is any reporting that is not covered by the regular financial accounting rules and customs.

Fraud and Non-GAAP Reporting

While specific financial accounting rules can, and should, be criticized, there is a good reason for rules to exist. The challenge of firms reporting whatever they want to is that it may be misleading to investors. The regulators, especially in the US, have thus had a history of seeing non-GAAP reporting as a fraud risk.

Non-GAAP Disclosures No Long Seen As Prima Facie Evidence Of Fraud

This perspective — that non-GAAP reporting is evidence of something nefarious — seems to be fading away though. As Dirk Black and his colleagues say, now “regulators recognize that non-GAAP metrics can be informative to investors and have laid the groundwork for firms to disclose the metrics in a transparent manner” (Black, 2018, page 259). It is indeed fascinating to see how views of non-GAAP measures have evolved in Black and his colleagues review paper.

Marketing and Non-GAAP Disclosures. How Can We Benefit?

What does this mean for marketing? The key point is that marketing has a complaint. GAAP does not serve marketing well. The question being: how then can firms use this new found freedom to inform investors about their marketing efforts? This could be a major area in coming years.

For more on accounting and marketing see here.

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Read: Dirk E. Black, Theodore E. Christensen, Jack T. Ciesielski, and Benjamin C. Whipple. “Non‐GAAP reporting: Evidence from academia and current practice.” Journal of Business Finance & Accounting 45, no. 3-4 (2018): 259-294.

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