Twitter is just one of many companies that point shareholders to rosier earnings measures. And when they do so, they’re adhering to a 2002 rule prescribed by the Securities and Exchange Commission in response to the Enron and WorldCom accounting frauds. That rule, known as Regulation G, allows companies to use nontraditional metrics in financial reports, but only if they present generally accepted accounting measures alongside so that investors can compare the two.
If the S.E.C. wanted its rule to discourage accounting gimmickry, it failed, Mr. Ciesielski said. “The S.E.C. inadvertently legitimized the practice with Regulation G,” he added….
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