Question

Which of the following accurately describes an auditors responsibility for non-gaap disclosures?

O auditors are not required to test non-gaap disclosures
O auditors must test non-gaap disclosures
O the auditors opinion on the financial statements includes non-gaap disclosures

Answer 1

Auditors are generally not required to test non-GAAP disclosures, but they may review them for consistency with audited financial statements. The auditor's opinion typically does not encompass non-GAAP disclosures directly.

Step-by-step explanation:

Auditors are not required to test non-GAAP disclosures as part of their basic responsibilities. However, if the non-GAAP measures are presented alongside the financial statements, and those statements are subject to an audit, the auditor may read the disclosures to ensure there is no material misstatement related to the audited financial statements.

When non-GAAP measures are included in a company's regulatory filings or earnings releases, the Securities and Exchange Commission (SEC) may require a reconciliation of non-GAAP measures to the closest GAAP measures. Although auditors don't test these non-GAAP measures as they would the GAAP measures, they may be involved to assess the appropriateness and presentation of this supplemental information in line with SEC rules. The auditors' opinion typically does not cover these non-GAAP measures directly.