Written By: Ken Tysiac
Engaging external auditors to perform procedures outside the financial statement audit related to non-GAAP financial measures or key performance indicators (KPIs) can raise public confidence in this information, according to a Center for Audit Quality (CAQ) report issued Tuesday.
In an audit of the financial statements, auditors generally have limited responsibility for non-GAAP measures and KPIs and are not required to provide an opinion on such measures. The CAQ report, The Role of Auditors in Non-GAAP Financial Measures and Key Performance Indicators: Present and Future, describes these responsibilities (the CAQ is affiliated with the AICPA).
Instead, professional standards require auditors to read the other information in documents containing the audited financial statements and consider whether such information or the way it is presented is materially inconsistent with the information appearing in the audited financial statements or contains a material misstatement of fact.
Reading and considering this information requires significantly less work than an audit. An auditor performing an audit of the financial statements or internal controls also provides no assurance on information in earnings releases and analyst presentations.
The CAQ report provides examples of services that auditors could be engaged to perform related to non-GAAP measures or KPIs. These include:
Attestation services to help the audit committee oversee non-GAAP measures and KPIs. These could include assessment of the consistency of calculations and confirming that the calculations comply with company policies.
- A compliance examination on whether the company followed SEC rules and regulations in the non-GAAP disclosures.
- Control testing related to the preparation and disclosure of non-GAAP measures.
“In their public interest role, public company auditors play a role in the flow of comparable and reliable information for decision-making,” CAQ Executive Director Julie Bell Lindsay said in a news release. “Having auditors associated with non-GAAP financial measures and KPIs could bring additional discipline to management’s process and help enhance the trust and confidence in such information.”
The CAQ report also includes considerations for audit committees and investors related to non-GAAP measures and provides additional information about non-GAAP disclosures.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.