Here’s a writeup of the SEC rules on non-GAAP metrics in earnings reports: https://www.protiviti.com/US-en/insights/sec-issues-guidance...
There’s a difference between what Enron did (ie. fraud) vs presenting alternative ways to measure business performance. If an investor thinks community adjusted EBITDA is a good metric to judge a business and then loses all their money, that’s on the investor. Even our most recent poster child of non-GAAP shenanigans publishes the GAAP numbers ahead of the non-GAAP measures (see eg. Page 111 which is the first mention of “adjusted EBITDA” presented below GAAP metrics vs page 21 on which the GAAP income statement is first published): https://www.sec.gov/Archives/edgar/data/1533523/000119312519...
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.”
>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
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.
This lets current politicians and current and near future recipients of defined benefit pensions to transfer the costs to future future taxpayers.
So everybody uses "GAAP" but it's not the same standards nor "whatever assumptions they want". If they used anything else, it would still be "GAAP", too.
Edit: I found a little more detail under revenue recognition page on wikipedia : https://en.wikipedia.org/wiki/Revenue_recognition
Non-GAAP essentially means the company decided it's extra special and the standard accounting doesn't capture it's uniqueness. Sometimes that's true but most of the time it's executive not liking what the GAAP number tells them.
A good example is WeWork's "Community Adjusted EBITDA".
