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State Board Report

December 2016

The significance of non-GAAP financial measures was underscored by the Public Company Accounting Oversight Board’s Investment Advisory Group (IAG), at their October 27 meeting. An IAG working group concluded that “GAAP and non-GAAP financial measures (NGFM) together can provide a more comprehensive perspective on how management runs the company and the board of directors governs the business” and it is critical to ensure that all NGFM are audited.

While the IAG working group recommended requiring disclosure and presentation of NGFM in financial statements to ensure they are consistently calculated and audited, the IAG members noted there exist “significant concerns about relevant jurisdiction and whether this can be achieved in a timely manner.” They also see the need for independent validation through self-regulation of the industry or trade organizations, but they are not sure whether this is a ”viable approach.”

Another IAG working group also reported back to the meeting on the implementation of the U.S. Treasury Department’s 2007 Advisory Committee on the Auditing Profession’s (ACAP) recommendations. NASBA had been one of the groups mentioned in the recommendations and that responded back to the 2016 working group’s survey. Most of the 31 recommendations that the survey requested input on had not been completely acted upon with successful results. The IAG working group commented: “We believe that industry-wide initiatives of this nature should in the future include a monitoring and public reporting mechanism with respect to the implementation of recommendations made.”

One recommendation that the IAG working group felt had been accomplished by NASBA, AICPA and the PCAOB was: “Develop training materials to help foster and maintain the application of healthy professional skepticism with respect to issues of independence and other conflicts among public company auditors, and inspect auditing firms, through the PCAOB inspection process, for independence training of partners and mid-career professionals.” Another recommendation that IAG members felt NASBA, PCAOB and SEC had achieved was to “require regular and formal roundtable meetings of regulators and other government enforcement bodies.”

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