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NTU Management Review Vol. 34 No. 1 Apr. 2024

The Effect of SEC’s Comment Letters on the Comparability of
Non-GAAP Earnings

Ting-Wei Yen, Deloitte & Touche
Sheng-Yi Lo, Department of Finance, National Sun Yat-sen University
Chi-Chun Liu, Department of Accounting, National Taiwan University
Lin-Hui Yu, Department of Accounting, National Taiwan University

1. Purpose and Objective

The widespread use of non-GAPP earnings has attracted the attention of the United
States Securities and Exchange Commission (SEC). Former SEC chairman White (2015)
states that the overuse of non-GAPP earnings measures about earnings releases may be a

source of confusion. SEC have been using comment letters to monitor companies in order
to improve their disclosure. Therefore, this study investigates whether SEC comment let-
ters help enhance the comparability of non-GAAP earnings information.

2. Literature and Hypothesis

Financial Accounting Standards Board (1980) provides the following definition
of comparability: “Comparability enhances the usefulness of information by allowing

investors to compare similar information about the same entity across time and about
one information about another company.” Previous studies have provided evidence
that comparability has benefits, including a reduction in information asymmetry (Leuz
and Verrecchia, 2000; Choi, Choi, Myers, and Ziebart, 2019), restatement of financial

statement and an increase in analyst forecast accuracy (De Franco, Kothari, and Verdi,
2011; Neel, 2017). Our study focuses on whether SEC comment letters can enhance the
comparability of non-GAAP earnings.
SEC comment letters are a direct method for the SEC to monitor the critical

accounting and disclosure decisions of registrants. The SEC requires companies to provide
additional supplemental information. The purpose of SEC comment letters is to improve
understanding of the disclosure required in the filing of documents provided by a company.

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