by Patrick Gallagher

December 20, 2016

With hundreds of investor relations teams having dutifully revised their earnings presentations and other materials to comply with the new Securities and Exchange Commission guidelines on the use of non-GAAP financial measures, it may seem like the commotion is over, but that would be wrong.

That was the message from SEC officials speaking at an American Institute of CPAs conference December 5-7, 2016, in Washington, D.C., according to reports in the Wall Street Journal and elsewhere.

“Things had gotten pretty bad,” Mark Kronforst, the chief accountant in the SEC’s Division of Corporate Finance, told reporters at the conference, as quoted in “We’re still cleaning up but there are a lot more comment letters to come.”

Speaking at the same conference, the chief accountant in the Division of Enforcement, Michael Maloney, said his team is also “looking closely” at non-GAAP reporting to see if there are any cases where metrics that mislead investors rise to the level of fraud.

According to a blog post on from four capital markets attorneys at Shearman & Sterling LLP, “The SEC enforcement staff would love to find some good enforcement cases to bring home to companies that they should be following that guidance and, perhaps, de-emphasize non-GAAP measures in earnings press releases.”

However, that is all about the ancien régime. In the new Trump order, will the SEC continue to clamp down on misleading non-GAAP accounting, or can companies expect “a lighter touch on enforcement”?

Our guess is that the SEC’s non-GAAP compliance initiative will not fade away in the Trump administration. Here are four clues as to why:

1. It does not seem to be on the agenda.

Like the case of the dog that didn’t bark, a Reuters article reviewing “some SEC rules that may weaken under Trump” does not mention non-GAAP.

2. It is pro-investor, but it’s not generally seen as anti-business.

Complying with the guidelines is not burdensome to companies, so it passes that standard Republican test.

3. There has been no organized pushback from industry associations or investor groups.

To the contrary, a new study out of London from the CFA Institute, the leading global association of professional investors, says, “Nevertheless, the question lingers as to whether measures [like the SEC’s compliance push] go far enough…” As with bankers cautioning the Trump team not to dismantle Dodd-Frank at this stage, most companies would probably prefer not to revisit the question of non-GAAP reporting in 2017.

4. The big difference under the new administrationaccording to the Wall Street Journal, is that the SEC is likely to be less aggressive “in terms of new enforcement activities and regulation” and “in pursuit of companies for what are seen as small infractions.”

The non-GAAP guidelines have long been in place, so this was not a new activity or regulation. The crackdown might seem to fit the bill as harassing companies for small infractions. The SEC has been insistent, even forceful, but not harassing. This does not seem like a basis for reversing course.

At a Financial Executives International conference in November, SEC Chief Accountant Wesley Bricker advised attendees that, “to avoid running afoul of non-GAAP provisions in the future, companies would be wise to take what they’ve done to re-examine their non-GAAP accounting currently and bake it into their reporting processes going forward.”

That still seems like good advice heading into 2017.

Read more about how the Trump transition could affect public companies