Tuesday, January 8, 2019
A Look at Climate Change Disclosures

Wednesday, January 2, 2019
Quants: Point-in-Time Data for Backtesting

Friday, December 28, 2018
Now Showing: Controls & Procedures

Thursday, December 27, 2018
A Reminder on Non-GAAP Reporting Rules

Monday, December 17, 2018
Researching PG&E’s Wildfire Risk

Wednesday, December 12, 2018
Tracking Brexit Disclosures

Thursday, December 6, 2018
Campbell Soup: Looking Behind the Label

Sunday, December 2, 2018
SEC Comment Letters: The Amazon Example

Wednesday, November 28, 2018
Measuring Big Pharma’s Chemical Dependency

Monday, November 26, 2018
Analysts, Can You Relate? A True Story

Monday, November 19, 2018
Digging Up Historical Trend Data: Quest Example

Sunday, November 11, 2018
Cost of Revenue, SG&A: Q3 Update

Monday, November 5, 2018
Lease Accounting: FedEx vs. UPS

Saturday, November 3, 2018
New Email Alerting Powers

Wednesday, October 31, 2018
PTC and Two Tales of Revenue

Tuesday, October 30, 2018
10-K/Q Section Text Change Detection

Sunday, October 28, 2018
Finding Purchase Price Allocation

Sunday, October 21, 2018
Charting Netflix Growth in Three Ways

Wednesday, October 17, 2018
Interesting Data on Interest Income

Thursday, October 11, 2018
The Decline of Sears in Three Charts

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Feds File Charges Over Non-GAAP Reporting
Wednesday, September 14, 2016

At last, the financial reporting news we’ve all been waiting for this year! Federal regulators have charged someone for improper use of a non-GAAP accounting metric.

Last week federal prosecutors in New York indicted Brian Block, the former head of finance for American Reality Capital Partners, on charges of conspiracy, securities fraud, making false filings to the Securities and Exchange Commission, and submitting false certifications to the SEC. If convicted, Block could face more than 20 years in prison.

The non-GAAP metric in question is “adjusted funds from operations,” or AFFO—a common metric among real estate investment firms like ARCP. Prosecutors say that in 2014, Block knew his firm had erroneously calculated its AFFO before it announced earnings, and then didn’t correct the error in subsequent filings. That added a false 3 cents per share to AFFO, and misled investors into believing the firm was on pace to meet full-year earnings guidance.

The U.S. attorney’s office for Manhattan announced the charges on Sept. 8, and is a rare example of enforcement over misuse of non-GAAP accounting. The charges are all the more newsworthy right now because the SEC has launched a task force to review companies’ use of non-GAAP reporting, and also published fresh guidance in May about how filers can use non-GAAP without drawing regulatory fire.

Calcbench has looked at the prevalence of non-GAAP accounting several times already this year, including our report on non-GAAP net income and a follow-up post looking at non-GAAP net income specifically within the S&P 500.

The SEC itself has not taken any action against Block that we can see. (Although facing criminal charges in federal court is probably headache enough for him.) Under SEC reporting rules, misuse of non-GAAP metrics is a violation of Regulation G. The agency might be investigating other parties on that point; we don’t know. But for all the talk about stepping up enforcement, so far the SEC hasn’t taken enforcement under Regulation G in years.

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