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Non-GAAP reporting smooths currency-driven volatility

Tammy Whitehouse | July 31, 2018

As trade and tariff wars wage on, companies are turning increasingly to non-GAAP accounting to try to explain the resulting currency volatility in reported financial results.

Under Accounting Standards Codification Topic 830, companies are required to report transactions in their functional currency, so U.S. companies report their results in U.S. dollars. Where companies have sales or expenses denominated in other currencies, as with overseas operations, those numbers must be reported in U.S. dollars as well.

The accounting rules require any conversion, whether it produces a gain or a loss depending on the dollar’s strength or weakness against other currencies, to be reported through the income statement. “It must be reflected in earnings as a currency gain or loss, so it could have great impacts on P&L depending on swings in currency,” says Alex Fredericks, a partner at...

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