Non-GAAP financial information - how prominent is too prominent?

Friday 14 July 2017

Author: Toby Sharpe

​​​Following a consultation earlier in the year, the FMA has updated the market of its expectations of issuers when disclosing non-GAAP financial information. 

The updated guidance largely reflects the policy directions signalled by the FMA in its March 2017 consultation paper. However, the accompanying Q&A provides some useful clarifications and practical examples. The updated Guidance Note (which replaces the FMA's 2012 Guidance Note) is available here and the associated Q&A is available here.

Like many regulators globally, the FMA approaches the use of non-GAAP financial information with caution. They feel that its increasing use presents challenges to investors and analysts, and that this is especially the case for "prudent-but-non-expert investors" - a group that the FMA has front of mind when preparing this sort of guidance. 

Accordingly, the FMA's Guidance Note is intended to:

  • promote meaningful and transparent communication of financial information,
  • help issuers disclose financial information in a way that is not misleading, and
  • increase market certainty about the FMA's views on disclosure of non-GAAP financial information and how they will assess these disclosures.

What does it apply to?

This guidance applies to the presentation of non-GAAP financial information by an "FMC reporting entity" outside of its financial statements. It would include, for example, non-GAAP financial information presented in market announcements, management commentary, investor presentations, and in relevant parts of product disclosure statements.

Its application does not extend to the presentation of non-financial metrics, such as employee or customer numbers.

Appropriate prominence

As foreshadowed in the March consultation paper, one of the key ​changes in the FMA's updated guidance is that non-GAAP financial information should not be presented with undue and greater prominence than the most comparable GAAP financial information.  

From its review of issuers' disclosures, the FMA felt that non-GAAP financial information was being given greater prominence (but not necessarily undue prominence). It felt that this resulted in an unbalanced view of an issuer's performance in many cases.

This seems to be a clear statement that the FMA wants to "move the needle" on market practice in this area. In light of this, we encourage issuers to look afresh at their relative use of GAAP and non-GAAP financial information. 

The FMA gives examples of what might constitute "undue and greater prominence" and therefore be potentially misleading, including:

  • where commentary on performance relates only to non-GAAP financial information, with little or no analysis of reconciling items from directly comparable GAAP information, 
  • not presenting the GAAP profit measure or presenting it only in a footnote to the non-GAAP measure,
  • changing the emphasis between GAAP and non-GAAP financial information from period to period, depending on which is more favourable for each period, 
  • not presenting the reconciliation (or a reference to the reconciliation) at least once in every document containing non-GAAP profit measure, and
  • presenting non-GAAP financial information stylistically to emphasise it over comparable GAAP information (e.g. bold, larger font).

​In contrast, the FMA gives the following examples which it thinks may not give undue and greater prominence:

  • using the GAAP profit measure prominently up front and subsequently analysing components of the non-GAAP profit measure by division or segment. This recognises that non-GAAP profit measures can be subsets of GAAP profit. However, the FMA thinks that it will still be important to give similar prominence to the analysis of the adjustments between the non-GAAP and the GAAP profit measure as are given to components of the non-GAAP profit measure - having regard to the relevance and materiality of the adjustments and components, 
  • having a headline of an announcement include both GAAP and non-GAAP profit measures, and
  • providing a summary of the reconciling items between the non-GAAP and GAAP profit measures up front, cross-referencing a more detailed reconciliation elsewhere. 


In a change that will have practical benefits, the FMA has removed the requirement that a reconciliation be provided in every document featuring non-GAAP information. Instead, if appropriate, issuers would be able to provide a reference to where the reconciliation can be easily accessed.

Whether it will be appropriate to provide a reconciliation by reference will depend on a range of factors, including how readily an investor will be able to access the reconciliation while reading the information provided. For example, if the information is provided in hard copy, it is unlikely that providing a reconciliation by reference will be appropriate. 

One-off / non-recurring items

The FMA has updated the principle in its 2012 Guidance Note on one-off or non-recurring items to make it clear that issuers should not be able to cherry-pick adjustments only when they lead to a favourable outcome. The policy to exclude one-off / non-recurring items should entail all items of such nature, regardless of whether they are related. 

The FMA also points out that issuers shouldn't describe items as one-off where they are reasonably likely to recur over a life of a business (albeit they may only arise in some years), or are activities that affected the issuer in the recent past. For example, the FMA thinks that often restructuring and impairment costs can reflect an issuer's activities and performance and shouldn't be adjusted for in non-GAAP financial information.

Internal policy

The FMA has provided some detailed guidance on what an issuer might include in its internal policy on disclosing non-GAAP financial information. 

If you would like help with how the FMA's updated guidance will affect your practices and reporting, our team of specialists are available to assist.​


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Toby Sharpe

    Partner Auckland
  • Anna Buchly

    Partner Auckland
  • Chris Goddard

    Partner Auckland
  • Amon Nunns

    Partner Wellington
Related areas of expertise
  • Equity capital markets
  • Corporate governance and advisory