For businesses operating in the shared economy, including peer-to-peer vehicle and real estate platforms, short-term rentals, and fleet rentals, it is crucial to stay informed about updated SEC guidance on non-GAAP financial measures. Adjusting your financial reporting practices to comply with these changes will ensure transparency with investors and maintain compliance with regulations. Here are some key considerations for shared economy businesses:
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Insurance Reserves: A prominent ride-sharing company recently reported substantial losses, largely due to an increase in insurance reserves and changes in the way the company accounts for those reserves. Shared economy businesses should closely monitor their insurance reserves and adjust their accounting practices accordingly to avoid similar issues.
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Revenue Recognition: Make sure your non-GAAP measures align with GAAP principles for revenue recognition. For example, do not accelerate revenue recognition in a non-GAAP measure if it's recognized ratably over time according to GAAP.
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Clear Descriptions and Labels: Ensure that your non-GAAP measures are appropriately labeled and clearly described to avoid misleading investors. Non-GAAP measures should be consistently defined and used across companies.
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Prominence of Non-GAAP Measures: When presenting non-GAAP measures, be sure to present the most directly comparable GAAP measure with equal or greater prominence. This includes charts, tables, or graphs of non-GAAP financial measures.
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Forward-Looking Non-GAAP Financial Measures: If you present forward-looking non-GAAP measures without accompanying quantitative reconciliations, disclose your reliance on the exemption, identify the unavailable information, and explain its probable significance in a location of equal or greater prominence.
By keeping these considerations in mind, shared economy businesses can ensure their financial reporting practices adhere to the updated SEC guidance on non-GAAP financial measures, fostering transparency and maintaining regulatory compliance.