• Accounting News Roundup: Standardizing Non-GAAP and Fraud Takes No Vacations | 07.05.16

    By | July 5, 2016

    Non-GAAP worries

    I spent the better part of two weeks away, but I see that people worrying about non-GAAP accounting never take a break. This morning, we have an article that focuses on the troublesome issue of defining what a non-GAAP metric is:

    [T]here is no accepted standard for what CFOs should add or exclude to calculate non-GAAP figures. This means there’s no apples-to-apples comparison between different companies.

    CFOs and accountants also frequently get stumped on whether something is a non-GAAP figure. For example, Rockwell Collins Inc. combined the income of two business segments — both are GAAP measures — to show investors the impact of its restructuring efforts. But the resulting figure was judged to be a non-GAAP metric.

    “There’s no adjustment involved, it’s just GAAP inputs,” said CFO Patrick Allen.

    It seems kinda strange to me that people are concerned that "there's no apples-to-apples comparison between different companies," because we have one — it's GAAP! But now it sounds like people want to another set of comparable standards for non-GAAP accounting? If that were done, would that create a set of GAAP for non-GAAP measures? And if there were standards for adjustments to GAAP, would some companies want to make adjustments to the adjustments? Would those be non-non-GAAP measures? My main concern is that this could all get very confusing very quickly.

    Accountants behaving badly

    Committing fraud is hard work, which means little time for vacations. Besides, someone might discover what you're up to while you're away. A recent example features Gary Tiffany II, an accountant and office manager for an investment advisor who allegedly carried out a scheme from June 2010 to July 2015:

    During that time, law enforcement officials alleged that Tiffany obtained a total of more than $3.38 million from the company by wiring funds from its accounts to his personal accounts and forging checks from the company’s accounts payable to himself.

    Tiffany allegedly concealed the payments by, among other things, making false entries in the company’s electronic accounting system and by manipulating the company’s bank statements to remove references to wire transfers he had made into his personal accounts.

    I'd be willing to bet that Tiffany took no vacation during that time. The company only discovered the fraud after putting him on a permanent vacation (i.e. downsizing).

    Then this story got me thinking something silly — what if Americans' vacation aversion is being driven by fraud? I mean, we all know it's really just people who can't get over themselves and don't trust colleagues to do right by them while they're away. But I like the idea that we're all too busy committing fraud to take a vacation, even if it is slightly ludicrous. 

    Elsewhere in bad accountants: 'The Little Couple' Producer Sues Ex-Accountant for Embezzlement

    Previously, on Going Concern…

    Thanks to the contributors who pitched in while I was away: Bryce Sanders, Greg Kyte, Leona May and Megan Lewczyk. Open Items was busy too, including: Will the IRS lose its battle against weed sellers?

    In other news:

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    • CharityB

      I always thought that one of the main appeals of non-GAAP financial measures is that it makes it harder to compare your company’s performance to that of the rest of the industry. As the article notes, companies that did want to avoid this confusion would present GAAP financial statements only. Using another system as well is basically saying, “What we’re doing is so unique and innovative that stodgy old accounting rules can’t even describe us!” There’s some appeal there if you’re an Elon Musk type of person.

      You could charitably argue that, as companies like Tesla and Groupon have claimed, that using non-GAAP financial measures are more accurate and meaningful.

      The closest way I can see to reconcile these two views is to maybe create (or, rather, re-emphasize) disclosure standards to make it clear to readers how and why there are differences between the company’s own system and how they report their results using GAAP.