The Impact of the FMA Guidance Note on Non-GAAP earnings disclosures
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Citation:Rainsbury, E. A. (2016, July). The Impact of the FMA Guidance Note on Non-GAAP Earnings Disclosures. Paper presented at 8th Asia-Pacific Interdisciplinary Research in Accounting Conference (APIRA) - 2016, Melbourne, Australia.
Permanent link to Research Bank record:https://hdl.handle.net/10652/4122
PURPOSE: It is common practice for companies to disclose earnings measures and other financial information, which is not prepared in accordance with generally accepted accounting practice such as (referred to as non-GAAP earnings and non-GAAP financial information). The New Zealand Financial Markets Authority (FMA) introduced a Guidance Note in 2012 to improve disclosure of non-GAAP information. This study investigates the effect of those guidelines on the number of New Zealand listed companies reporting non-GAAP earnings and the quality of non-GAAP earnings information disclosed. DESIGN/METHODOLOGY/APPROACH: A disclosure and prominence index are created to measure any change in company’s compliance with the FMA guidance on the presentation of non-GAAP information and the level of prominence given to non-GAAP earnings. FINDINGS The findings show that the guidelines, despite not being mandatory, are modifying corporate disclosure behaviour. Companies have improved the way they disclose non-GAAP earnings information and there has been a reduction in the emphasis given to non-GAAP earnings as opposed to audited statutory profit. However, the study also highlights areas for improvement, including the depth of explanation of non-GAAP earnings calculations and adjustments, and concern about multiple nonGAAP earnings measures used to explain performance. ORIGINALITY/VALUE There has been no academic research on the impact of the FMA Guidance Note on company disclosure practice. This study contributes to the developing research on non-GAAP earnings by extending the research to a small country with different institutional and market features and policy responses to disclosure of non-GAAP earnings