Some red meat this week for all you non-GAAP accounting aficionados: Calcbench just released our third annual analysis of non-GAAP adjustments to net income among large companies — and those adjustments just keep on coming.

Our crack research team, including a squad of undergraduate accounting “winterns” from Suffolk University, pored through the 2022 earnings reports for 200 randomly selected companies in the S&P 500. They tallied up every non-GAAP adjustment to net income they could find, grouped them by type of adjustment, and identified which categories of adjustment were (1) most common; and (2) the largest by total dollars adjusted.

You can download the full report on our Research Page. The major findings are as follows.

  • Among the 200 companies in our sample, we found 1,188 individual reconciling items with a total value of almost $219 billion.
  • Companies averaged 5.9 reconciling items in 2022, almost identical to the average of 5.8 reconciling items from our 2021 study.
  • The average value of the adjustment, however, was $184 million — a 53 percent increase from the prior year.
  • Average adjusted non-GAAP net income was $3.97 billion, 38 percent larger than average GAAP net income, which was only $2.87 billion.
  • Eighty-three percent of all companies adjusting non-GAAP net income upward, versus only 17 percent that adjusted non-GAAP net income downward.

The bottom line: non-GAAP adjustments to net income are widespread, come in all shapes and sizes, and usually add a significant amount to whatever GAAP net income the company in question is reporting.

All of which points, yet again, to a question that the financial reporting community has been asking for years: If so many companies are reporting adjusted non-GAAP income, is “traditional” net income under GAAP really that informative?

It’s not Calcbench’s place to say — but we do have all the data you need to ponder that question yourself.

Non-GAAP Adjustments by Category

Table 1, below, shows the various categories of non-GAAP adjustments that we identified, along with how often those adjustments were made, their dollar amount, and the relative size of each category to the whole.

As you can see, the most common categories of non-GAAP adjustment were, in order (and excluding the “Other” category):

  • Gains and losses on investments (including pensions)
  • Tax adjustments
  • Mergers, acquisitions, and divestitures
  • Restructuring costs
  • Amortization of intangible assets

On the other hand, the largest categories of adjustment by total dollars adjusted were, in order:

  • Impairments
  • Amortization of intangible assets
  • Tax adjustments
  • Mergers, acquisitions, and divestitures
  • Gains and losses on investments (including pensions)

Figure 2, below, shows that same information as a pie chart.

And for those who love scatterplots, Figure 3, below, shows which non-GAAP net income disclosures were higher or lower than GAAP net income, and to what extent. As you can see, most non-GAAP net income disclosures were zero to 50 percent higher than net income, although a few outliers had adjusted non-GAAP net income that was 400 percent or higher larger than GAAP net income.

We very much thank Suffolk University’s winterns, without whom this research never would have been possible. Calcbench will also take deeper dives into this year’s non-GAAP analysis over the coming days.

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