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by CapriciousCptl 2253 days ago
I think non-GAAP adjustments were mostly used in the article as a rough marker of "crookedness" that you can measure. Because by far, worldwide, the primary means of fraud involves revenue recognition and other accounting shenanigans (very much recommend the book by the same name) that both IFRS and GAAP are vulnerable to. It's just that's much harder to find that stuff out. But, when the SEC notices a problem with your revenue recognition policies affecting your revenue by a few percent, the SEC comes down on you hard. KHC was an example of that last year or maybe 2 years ago with the new rules in ASC606.

It was news to me that IFRS cracked down on non-GAAP adjustments, particularly because I follow some foreign filers in the US and haven't noticed much of a difference. But then again, I don't follow a lot of companies with the type of management that harps on EBITDA and adjusted EBITDA anyway. According to Charlie Munger, "I think you would understand any presentation using the word EBITDA, if every time you saw that word you just substituted the phrase, “bullshit earnings.”
2 comments
Havoc 2252 days ago
Agreed regarding revenue being the bigger issue.

>It was news to me that IFRS cracked down on non-GAAP adjustments

It's mostly achieved by prohibiting adjustment for "extraordinary items". That stops 90% of this bullshit right there. I gather US GAAP has done the same but kept the concept of non-recurring items.

Whether presenting "Alternative Performance Measures" is allowed at all depends on the country specific regulator. Where they are it's generally in addition to the IFRS measures and if you look at ESMA (EU regulator) they require a reconciliation and various other stuff about fair presentation thereof:

https://www.esma.europa.eu/file/1689/download?token=VQsQ7JzC

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clairity 2252 days ago
the conclusion that EBITDA == “bullshit earnings” is overblown, or a feint at worst.

EBITDA lets you look at the operational performance of a business in isolation. that is, before financial considerations, where lots of little levers like tax shifting & accelerated depreciation can cook the numbers too.

if you're skeptical about one number on an income statement, you might as well be skeptical of them all (and for most public businesses, you should be skeptical).

edit: should note that "adjusted" anything on a financial statement should tingle the spidey senses.

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