The Impact of the FMA Guidance Note on Non-GAAP earnings disclosures

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Authors
Rainsbury, Liz
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Date
2016-07
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Type
Conference Contribution - Oral Presentation
Ngā Upoko Tukutuku (Māori subject headings)
Keyword
non-GAAP earnings
informativeness of earnings
strategic earning benchmarks
signalling and manipulation hypothesis
FMA 2012
FMA Guidance
Financial Markets Authority (FMA) of New Zealand
disclosure
ANZSRC Field of Research Code (2020)
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.
Abstract
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
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Asia-Pacific Interdisciplinary Research in Accounting Conference (APIRA)
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