Risk & Compliance

New Guidelines Aim to Rein in Press Releases

You thought you could put basically anything you like in a press release?
Ed ZwirnApril 26, 2001

Concerned that an increasing number of press releases may be less than reflective of both reality and GAAP, two organizations highly influential with senior financial executives on Thursday jointly issued a set of “best practices” guidelines intending to govern earnings press release preparation.

The new guidelines, which center mainly on the use of “pro forma” numbers, were introduced by representatives of the Financial Executives International (FEI) and The National Investor Relations Institute (NIRI) at a New York meeting sponsored by FEI and the American Institute of Certified Public Accountants (AICPA).

While the rules–the first industry-wide attempt at Best Practices guidelines aimed at press releases–do not have either regulatory or legal force, they are bound to be influential, at least in legal circles, where they may eventually be cited in shareholder lawsuits and other actions attacking companies for misleading investors.

The guidelines say that press releases containing pro forma numbers, or numbers compiled “as a matter of form” modifying or omitting key GAAP components or definitions, may be presented but must contain “clearly described reconciliation to GAAP results, which provide a critical framework for pro forma numbers.”

Philip D. Ameen, VP and Comptroller of General Electric Co. and chairman of FEI’s Committee on Corporate Reporting, said that his committee had “seen patterns in press releases of reporting that was sub-optimal.”

Under the new guidelines, he said, “GAAP earnings have to be in an earnings press release but they don’t have to be highlighted.”

“We recognize that management is not at arms length in a press release, but a certain amount of balance has to be presented. There are clearly no recommendations for sequence and we don’t try to tell you what to make a headline,” he told a press briefing at the session, adding that he expected journalists to help ensure adherence to the new guidelines.

“We would rely on you guys to take these press releases and throw them back in management’s face and ask ‘where are these items?’” he told assembled reporters and editors.

Ameen and Philip Livingston, FEI president and CEO, cited several examples of the types of press release practices the guidelines, which were brought about partly at the urging of SEC officials, are intended to eliminate.

“The most common one is when they adjust for amortization of acquisitions,” said Livingston.

Other “sub-optimal” practices, cited by Ameen, include “removing sales expenses and operating expenses from pro forma earnings.”

Disclosure of these omissions, he said, would make the intent to mislead “fall flat on its face.”

FEI describes itself as “the leading advocate for the views of corporate financial management” and includes among its 15,000 members people holding such “policy-making positions as CFO treasurers and controllers.”

NIRI, a professional association of corporate officers and investor relations consultants, says it has more than 5,300 members representing over 2,600 publicly held companies.

The guidelines were presented Thursday morning at an FEI/AICPA joint conference, “Benchmarking the Quality of Earnings.”