Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings.These numbers are controversial as they represent management’s view of permanent earnings. The SarbanesOxley Act (SOX), issued in 2002, requires that if non-GAAP earnings are included in any periodic or other reportfiled with the SEC or in any public disclosure or press release, the company also must provide a reconciliationwith earnings determined according to GAAP.Professors Entwistle, Feltham, and Mbagwu, in “Financial Reporting Regulation and the Reporting of ProForma Earnings,” examine whether firms changed their reporting practice in response to the regulations includedin SOX.Required:1. In your library or from some other source, locate the indicated article in Accounting Horizons, March 2006.2. What sample of firms did the authors use in their examination?3. What percent of firms reported non-GAAP earnings (referred to as pro forma earnings by the authors) in2001? In 2003?4. What percent of firms had non-GAAP earnings greater than GAAP earnings in 2001? In 2003?
Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings.
These numbers are controversial as they represent management’s view of permanent earnings. The SarbanesOxley Act (SOX), issued in 2002, requires that if non-GAAP earnings are included in any periodic or other report
filed with the SEC or in any public disclosure or press release, the company also must provide a reconciliation
with earnings determined according to GAAP.
Professors Entwistle, Feltham, and Mbagwu, in “Financial Reporting Regulation and the Reporting of Pro
Forma Earnings,” examine whether firms changed their reporting practice in response to the regulations included
in SOX.
Required:
1. In your library or from some other source, locate the indicated article in Accounting Horizons, March 2006.
2. What sample of firms did the authors use in their examination?
3. What percent of firms reported non-GAAP earnings (referred to as pro forma earnings by the authors) in
2001? In 2003?
4. What percent of firms had non-GAAP earnings greater than GAAP earnings in 2001? In 2003?
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Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. These numbers are controversial as they represent management’s view of permanent earnings. The Sarbanes-Oxley Act (SOX), issued in 2002, requires that if non-GAAP earnings are included in any periodic or other report filed with the SEC or in any public disclosure or press release, the company also must provide reconciliation with earnings determined according to GAAP. Professors Entwistle, Feltham, and Mbagwu, in “Financial Reporting Regulation and the Reporting of Pro Forma Earnings,” examine whether firms changed their reporting practice in response to the regulations included in SOX.
Answer the following:
- What sample of firms did the authors use in their examination?
- What percent of firms reported non-GAAP earnings (referred to as pro forma earnings by the authors) in 2001? In 2003?
- What was the most frequently reported adjusting item in 2001? In 2003?
- What is the authors’ main conclusion of the impact of SOX on non-GAAP reporting?
- Is this conclusion still true today? Provide at least two references to support your answer.
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