Non‐GAAP Earnings Disclosure Trends in New Zealand

Mariela Carvajal, David H. Lont and Tom Scott

Australian Accounting Review, 2022, vol. 32, issue 1, 19-35

Abstract: Non‐generally accepted accounting practice (non‐GAAP) earnings provoke mixed opinions on their usefulness. We provide evidence over a 15‐year period that captures changes to accounting standards, economic conditions and regulatory guidance notes on non‐GAAP earnings. First, many firms do not use non‐GAAP earnings measures, with its popularity peaking at almost 59% in 2012 compared to below 33% in 2004, before decreasing to under 48% by 2018. The most common adjustments are tax, interest and depreciation, consistent with the preference for operating performance metrics. We document an improvement in the frequency of ‘Unknown’ adjustments (those that cannot be reconciled), reaching 32% in 2007, but it was not until 2013 that a significant improvement occurred. As this coincides with the timing of a Financial Markets Authority (FMA) guidance note requiring non‐GAAP earnings reconciliations, implying greater disclosure transparency needs clear regulatory guidelines. Second, we find an elevated use of asset impairment, restructuring and fair value adjustments around the Global Financial Crisis (GFC), which suggests managers perceive GAAP earnings have to be supplemented during major economic shocks.

Date: 2022
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