The Securities and Exchange Commission (SEC) is mandated to regulate the financial statements of publically traded reporting corporations. Recently, the SEC has renewed their focus on Non-GAAP reporting issues that are impacting the valuation process of regulated companies.

In 2003, the SEC issued Reg G which restricted a companys ability to deviate from compliance with GAAP regulatory pronouncements. Prior to the issuance of REG G, major reporting issues pertaining to ENRON had resulted in the SEC becoming aware of misleading reports due to Non-GAAP Compliance Issues. Recently, 380 out of the S & Ps 500 reporting entities reporting a DECREASE to GAAP Net Income but an INCREASE to Non-GAAP Net Income. WHY? The primary differences were the result of EXCLUDED EXPENSES on the Non-GAAP Compliant reports. Many reporting entities were classifying certain routine, recurring operating expenses as NONRECURRING items. For example: Restructuring Costs and / or Impairment Costs are NOT included in the Non-GAAP reports because the management team felt the financial value of the companys results were undermined by these rare costs. This process is allowed by the SECbutredefining operating expenses as Non-Recurring expenses in an attempt to enhance their financial results has become a motivating driver to this problematic process.

The SEC brought their first Pro Forma Financial Reporting Case on January 16, 2002 against Trump Hotels & Casinos. The case centered upon the abuse of Pro Forma earnings which resulted in a misleading Q3 1999 Pro Forma Earnings Release which was inflated to exceed the analysts expectations. In 2009, the SEC brought similar charges against SafeNet Incs management team charging them with a scheme aimed at reclassifying recurring operating expenses as non-recurring (Nov 2009.)

Groupon, in their Initial Public Offering (IPO) filings in 2011 stated they do not measure themselves in conventional ways. The result was overstated profits that lead to inflated stock valuation prices and the need to restatement prior financial reports. Many in the business world believe that many companies are focused on reported EBE = Earnings BEFOR Expensesrather than EBITA = Earnings Before Interest , Taxes & Amortization.

In an article dated June 29, 2016, the financial reporting community stated that reporting companies inflated profits by $164 Billion using Non-GAAP Measures which clearly indicates the problem is on-going and material.

Start your research process by reading SEC 100 Gen rules. You can also refer to Sarbannes-Oxley (SOX) legislation where the pronouncement strongly discourages Non-GAAP reporting. Read the issues the SEC had with Trump Casinos, SafeNet Inc and Groupon. I want you to discuss the GAAP vs. Non-GAAP compliance issue and integrate the following questions into your response.

1.) Does the use of Non-GAAP reports impair the ability to compare prior periods and competitors reports?

2.) Does the Non-GAAP numbers provide a reasonable source of reliable information?

3,) Should corporations be REQUIRED to report ALL numbers in accordance with GAAPeven during the quarterly, non-audited venue?

4.) Is there a need to translate complex GAAP based information into more useful financial data?