A Blueprint for Digital Companies’ Financial Reporting
AUGUST 3, 2018
Currently, firms’ first report net profits and then back out many of these one-time items to present a non-GAAP (Generally Accepted Accounting Principles) profit number. Because investors consider these non-GAAP numbers to be value-relevant, we propose a more direct way for them to be calculated. For example, a firm could mislabel a product-enhancement expense as a product-development outlay or overestimate the lifetime value of a customer.