Google Inc.—Earnings Announcements and
Information Environment
a. In the Report of Independent Registered Public Accounting Firm, the
auditors, Ernst & Young, LLP, state that “In our opinion, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Google Inc. as of December 31, 2012 and
2013, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2013, in conformity
with U.S. generally accepted accounting principles.” This standard-language
passage indicates that the opinion is unqualified, or “clean.” The audit
opinion is dated February 11, 2014. This is 42 days after the end of Google’s
fiscal year and represents the date when all significant audit field work was
completed.
b. i. Non-GAAP earnings numbers exclude expenses and losses (and sometimes
revenues and gains) that managers believe are nonrecurring or “one-time,”
items that capture unusual activity, or that do not reflect operating
results. Managers believe non-GAAP forma earnings present a truer picture of
their firm’s operating results. Examples of expenses or charges that may be
included in GAAP net income, but excluded from a non-GAAP earnings disclosure
are losses from discontinued operations, stock-based compensation expense,
restructuring and other special “one-time” charges, extraordinary items and
debt extinguishment costs.
b. ii. Non-GAAP numbers can inform investors and analysts if the numbers
convey additional information to the market or if the non-GAAP numbers reveal
managers’ private information. For example, the market may understand that
some income statement items are transitory but may not have enough
information to know exactly how much is expected to recur and how much is a
one-time item. Analysts also tend to exclude nonrecurring items from their
earnings forecasts and thus, these non-GAAP disclosures by the firm may...