Brown-Forman changes accounting after SEC coaxing
Brown-Forman Corp. said Thursday it would no longer use certain non-standard metrics in its financial reporting, including ones that had been criticized by the Securities and Exchange Commission and highlighted by MarketWatch in past reporting.
That new description “includes all of the non-GAAP adjustments that we have historically made in adjusting GAAP to ‘underlying change’ results, except that ‘organic change’ does not include an adjustment for ‘estimated net change in distributor inventories,'” he said. “Please expand your disclosure to include discussion and analysis, with equal or greater prominence, of the most directly comparable GAAP financial measure to underlying measures,” the regulator wrote. “We note that your results of operations discussions primarily focus on the year-over-year changes in the underlying measures as opposed to movements in the GAAP measures. ” In other words, the company had not been offering the required reconciliation between its GAAP and non-standard numbers.
That stipulates that “Non-GAAP measures that substitute individually tailored revenue recognition and measurement methods for those of GAAP” could violate SEC rules. That’s because Individually tailored methods substitute a company’s own interpretation of accounting standards for GAAP. Brown-Forman responded by saying that it used “estimated net change in distributor inventories” to reflect its distributors’ downstream sales, as it believes those “more closely reflect actual consumer demand than do our shipments to distributors.” But it can only recognize revenue when its products are shipped to distributors or delivered to customers.
“Please remove this adjustment from future filings or explain why you do not believe it represents a tailored accounting measure,” it wrote back. Brown-Forman agreed to remove that metric too.
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