Study finds a widening gap between non-GAAP and GAAP reporting
NEW YORK, June 1, 2023 /PRNewswire-PRWeb/ -- Calcbench, the leading interactive financial research firm for data-intensive analysts, in collaboration with students at Suffolk University's Sawyer Business School (SBS), announced their third annual non-GAAP report. The study analyzed 200 randomly chosen S&P 500 firms' 2022 filings and found a 38 percent difference in non-GAAP and GAAP net income, up from 14 percent in 2021.
Calcbench and Suffolk found 1,188 individual reconciling items with a total value of almost $219 billion in the sample group reviewed. Firms averaged 5.9 reconciling items in 2022, almost identical to the average of 5.8 adjustments per firm in 2021. The average value of the adjustment, however, was $184 million — a 53 percent jump from the prior year. Average non-GAAP adjusted net income was $3.97 billion, 38 percent larger than average GAAP net income, which was only $2.87 billion.
"These findings continue to question the information value of as-reported GAAP net income and raise questions about firms' motivations in reporting adjusted net income," says Pranav Ghai, co-Founder and CEO of Calcbench.
The most common categories of adjustment were, in order:
- 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)
Perhaps as a sign of today's turbulent economic climate, impairments also accounted for 35 percent of total dollars adjusted: $76.48 billion of the $219 billion total. That is a significant jump from the 8 percent of total dollars adjusted in our 2021 analysis.
In addition to the widening gap between GAAP and non-GAAP reporting, "Wintern" students at Suffolk University's Sawyer Business School found that 83 percent of firms adjusted profitability upwards. Some noteworthy non-GAAP upward adjustments came from AT&T and Fidelity National Information Services, which made $24 billion and nearly $18 billion in impairment adjustments, respectively. For more on specific company adjustments, read the Wall Street Journal article, "Earnings Adjustments Topped an Average of $1 Billion for Big Companies Last Year" published on May 31, 2023.
"Understanding non-GAAP reporting is critical for students who are looking at a career in accounting or finance," said Tracey Riley, Associate Dean of SBS Online Programs, Associate Professor, Accounting & Business Law. "With the majority of companies showing adjustments of up to 50 percent, the next step will be for students to discern whether this will be sustainable for future performance."
About Calcbench
Calcbench is a financial data platform designed for outperformance. Founded in 2011, the company uses the latest technology to offer instant and systematic access to all the data (numbers and text) in financial statements, including the details hidden within the footnotes. Developed by former analysts and supported by a team of financial experts, Calcbench was built for data analysis looking to go deeper. Visit http://www.calcbench.com to learn more.
About Suffolk University
Suffolk University, located in historic downtown Boston, with an international campus in Madrid, provides students with experiential and transformational learning opportunities that begin in the center of Boston, reach across the globe, and lead to extraordinary outcomes for graduates. The University is driven by the power of education, inclusion, and engagement to change lives and positively impact communities. Suffolk University offers a wide range of undergraduate and graduate programs in its College of Arts & Sciences, Sawyer Business School, and Law School.
Media Contact
Samantha Berg, Calcbench, 1 9175334622, [email protected]
SOURCE Calcbench
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