Auditing Non-GAAP Measures: Signaling More Than Intended*

Spencer B. Anderson, Jessen L. Hobson, Ryan D. Sommerfeldt

Research output: Contribution to journalArticlepeer-review


Many companies regularly disclose non-GAAP performance measures to communicate firm-specific information that does not fit within the mold of GAAP reporting. However, these non-GAAP measures may have low information content or even be misleading to investors. Thus, the question arises of whether auditors should play a larger role in the reporting of non-GAAP measures, which currently are not audited. We run an experiment to provide ex ante evidence on the effect of auditing non-GAAP measures. Specifically, we present investor-participants with a non-GAAP measure that should be used when making investment judgments (more informative) or should not be used when making investment judgments (less informative) and is either audited or is not audited. As predicted, we find that, when participants view a non-GAAP measure that is more informative, they appropriately use the non-GAAP measure in their investment-related judgments, regardless of whether the measure is audited. However, also as predicted, we find that, while participants appropriately do not use a less informative non-GAAP measure when it is not audited, participants inappropriately do use the less informative non-GAAP measure in their investment-related judgments when it is audited. Mediation results provide evidence consistent with audits affecting investors' reliance on non-GAAP measures. Specifically, our results are consistent with audits of non-GAAP measures signaling more than is intended, evidenced by investors perceiving an audited non-GAAP measure as being useful in their investment decisions when the measure is less informative to them. Our findings suggest that regulators should exercise caution when it comes to prescribing assurance over non-GAAP measures.

Original languageEnglish (US)
Pages (from-to)577-606
Number of pages30
JournalContemporary Accounting Research
Issue number1
StatePublished - Mar 1 2022


  • attribute substitution
  • audit
  • expectation gap
  • non-GAAP measures
  • pro forma
  • street earnings

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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