Non-GAAP Financial Measures: 2026 SEC Compliance Guide

If your earnings release leads with adjusted EBITDA or non-GAAP EPS, you are operating under one of the SEC's most actively enforced disclosure frameworks. Non-GAAP financial measures have topped the SEC staff's comment letter list for years, and the 2026 environment adds new pressure: tariff charges, AI restructuring costs, and ESG-linked items are all drawing fresh scrutiny over whether they are genuinely non-recurring or just dressed-up operating expenses.

This guide maps the full regulatory framework, the December 2022 C&DI updates that many companies still misapply, the specific adjustment categories the SEC staff is challenging right now, and a practical checklist you can run against your next filing.

Key takeaway: The black-letter rules have not changed since 2003. What has changed is the SEC staff's interpretive posture, codified in the December 2022 C&DIs, and the new categories of charges companies are trying to exclude in 2026. Getting both right is the compliance challenge.

What Are the SEC Non-GAAP Disclosure Requirements in 2026?

Three separate regulatory sources govern non-GAAP financial measures, and all three can apply simultaneously. Most companies treat them as one rule. They are not.

The practical implication: an investor presentation posted to your website is subject to Reg G but not Item 10(e). Your 10-K MD&A is subject to both. Your earnings release furnished on Form 8-K sits in its own category under Instruction 2 to Item 2.02. A compliance review that checks only one source will miss violations in the others.

The SEC adopted these rules in 2003 following the corporate accounting scandals of that era. They have not been substantively amended since. The rules that matter most in practice today are the staff's interpretive positions in the C&DIs, not the black-letter regulatory text.

The Three Mandatory Disclosures (and What the SEC Actually Checks)

Every non-GAAP measure requires three things alongside it. Miss any one and you have a comment letter waiting.

1. The most directly comparable GAAP measure, presented with equal or greater prominence. In an earnings release, this means the GAAP figure appears before or at least at the same visual level as the non-GAAP figure. Font size, placement, and table ordering all factor in. The staff has challenged releases where the GAAP measure appeared only in a footnote or reconciliation table buried at the end of the document.

2. A quantitative reconciliation from the non-GAAP measure to the most directly comparable GAAP measure, line by line. For forward-looking non-GAAP measures (guidance on non-GAAP EPS, for example), a reconciliation is required unless the company can demonstrate it would require "unreasonable efforts" to produce the comparable GAAP figure, in which case that fact must be disclosed along with why.

3. A statement of why the measure is useful to investors, and how management uses it internally. Generic boilerplate, such as the standard language that non-GAAP measures "provide meaningful supplemental information regarding performance and liquidity," satisfies the technical requirement but attracts staff scrutiny when it is not tailored to the specific measure. The SEC staff has challenged cases where this language is identical across all measures regardless of their nature.

What "Equal or Greater Prominence" Means in Practice

"Equal or greater prominence" is the most subjectively applied requirement in the non-GAAP framework, and it generates a disproportionate share of comment letters.

The December 2022 C&DIs reinforced the staff's view on prominence in earnings releases. In practice, the staff expects:

• GAAP revenue appears before non-GAAP revenue in any table or narrative discussion
• GAAP net income appears before non-GAAP net income or adjusted net income
• Headlines and bullet-point summaries at the top of an earnings release do not lead exclusively with non-GAAP figures
• Reconciliation tables appear in the body of the release, not only in an appendix

Look at how this plays out in real filings. Similarweb's Q1 2026 earnings release reported a GAAP operating loss of $(4.4) million against a non-GAAP operating profit of $2.4 million, a $6.8 million swing. The company also presented "normalized free cash flow" of $6.6 million as a distinct non-GAAP measure separate from GAAP free cash flow of $(0.3) million. Each measure carried its own reconciliation. That layering of multiple non-GAAP measures is precisely what the staff scrutinizes for prominence compliance.

Prohibited Practices Under Item 10(e) and the C&DIs

Item 10(e) contains an explicit list of prohibited practices. The December 2022 C&DIs added interpretive prohibitions on top of these. Together, they cover:

Explicit prohibitions under Item 10(e):

• Presenting a non-GAAP measure on the face of a GAAP financial statement or in the notes
• Using titles that are the same as, or confusingly similar to, GAAP line items (labeling a contribution margin "net revenue," for example)
• Presenting a non-GAAP per-share measure of liquidity
• Excluding charges without excluding gains of the same nature in the same period

Interpretive prohibitions from the December 2022 C&DIs:

• Individually tailored accounting principles (updated Q 100.04): A non-GAAP measure that changes the recognition or measurement principles required by GAAP is misleading. Examples include accelerating revenue that GAAP recognizes ratably, switching from gross to net revenue presentation (or vice versa), or converting from accrual to cash basis. This prohibition is broader than most companies realize: it is not just about revenue recognition but any adjustment that effectively rewrites GAAP accounting policy.
• Recurring items dressed as non-recurring (updated Q 100.01): An expense that occurs repeatedly or occasionally, including at irregular intervals, is recurring. The staff considers the nature and effect of the adjustment and how it relates to the company's operations, revenue-generating activities, business strategy, industry, and regulatory environment. "Irregular" does not mean "non-recurring."
• Misleading labels (new Q 100.05): Failure to identify a measure as non-GAAP, or using a label that does not reflect the measure's nature, violates Reg G Rule 100(b). A measure labeled "pro forma" that does not comply with Article 11 of Regulation S-X is specifically called out.
• Misleading even with extensive disclosure (new Q 100.06): The staff's view is that a non-GAAP measure can mislead investors to such a degree that even detailed disclosure about each adjustment would not cure the problem. Extensive footnotes are not a safe harbor for a fundamentally misleading measure.

PwC's SEC comment letter tracker confirms that Item 10(e) and the related C&DIs generate frequent comments in both annual and quarterly filing reviews, not just in earnings releases.

What the SEC Is Challenging in 2025-2026 Comment Letters

Non-GAAP measures routinely rank near the top of the SEC staff's annual comment letter topics, according to KPMG's April 2026 Non-GAAP Handbook. The specific patterns the staff is flagging right now:

Tariff-Related Charges

Companies are excluding tariff-related costs from adjusted operating income and adjusted EBITDA, characterizing them as non-recurring. The staff's likely posture: if tariff exposure is ongoing and related to your core supply chain, it is a normal operating cost under the updated Q 100.01 standard. The fact that tariff rates change does not make the underlying cost non-recurring. See Finrep's tariff disclosures in SEC filings guide for the broader MD&A context.

AI and Restructuring Costs

AI-related transformation costs, including headcount reductions and system migration expenses, are appearing as non-GAAP exclusions. The staff will ask whether these costs are genuinely one-time or whether they reflect an ongoing strategic investment. A company that has excluded "AI transformation costs" for three consecutive quarters has a recurring item by the staff's definition.

ESG and Sustainability-Linked Items

Carbon credit purchases, sustainability certification costs, and ESG-linked compensation adjustments are emerging as non-GAAP exclusions. None of these have published SEC guidance, but the Q 100.01 framework applies: if the cost is necessary to operate the business in the company's regulatory and competitive environment, excluding it is likely misleading.

Stock-Based Compensation

Excluding SBC remains widespread. By Q1 2020, 94% of S&P 500 companies used non-GAAP measures, and SBC exclusion is near-universal in technology. The staff has not prohibited SBC exclusion, but it has challenged cases where the exclusion is not consistently applied across periods, or where the usefulness disclosure does not explain why SBC is excluded for this particular company's business model.

Free Cash Flow Definitions

The staff continues to challenge free cash flow definitions that exclude items it considers normal operating cash outflows. Similarweb's Q1 2026 release illustrates the layering risk: presenting "normalized free cash flow" of $6.6 million alongside GAAP free cash flow of $(0.3) million requires a clear, defensible explanation of what "normalization" means and why each excluded item is not a normal operating outflow.

Non-GAAP Measures in Compensation Plans

The December 2022 C&DIs specifically addressed non-GAAP measures used in executive compensation arrangements. If the measure used to determine bonuses or long-term incentive payouts differs from the measure disclosed in earnings releases, or if the compensation-plan measure is not disclosed with the same prominence and reconciliation as other non-GAAP measures, the staff will ask about it. This intersection with Reg S-K Item 402 is one of the most overlooked compliance gaps.

Individually Tailored Accounting Principles in MD&A

The staff is flagging MD&A sections where non-GAAP measures effectively substitute for GAAP line items without adequate reconciliation, creating what amounts to a non-GAAP income statement. If your MD&A discusses results primarily in non-GAAP terms and relegates GAAP figures to tables, expect a comment.

Do Non-GAAP Measures Require Internal Controls?

Yes, and this is the compliance gap most companies have not closed.

KPMG's April 2026 Handbook dedicates a full chapter to management's responsibilities for preparing, presenting, and controlling non-GAAP measure disclosures under disclosure controls and procedures (DCPs) and, where applicable, internal controls over financial reporting (ICFR). Almost no practitioner-facing content outside of Big-4 handbooks addresses this.

The practical implications:

• DCPs must cover non-GAAP measures. If your disclosure controls are designed only around GAAP financial data, they do not cover the non-GAAP figures that appear in your earnings releases and SEC filings. The CEO and CFO certifications under SOX Sections 302 and 906 extend to all material information in periodic reports, including non-GAAP disclosures.
• ICFR may be implicated. Where non-GAAP measures are derived from underlying financial data that flows through the general ledger, the controls over that data are part of ICFR. A material error in a non-GAAP reconciliation that traces to a control failure can contribute to a material weakness. See Finrep's material weakness disclosure guide for the downstream consequences.
• The review process matters. Who prepares the reconciliation? Who reviews it? Is there a second-level sign-off before the earnings release is filed? These process questions are what an SEC staff review or an auditor's DCP assessment will probe.

As KPMG's Department of Professional Practice puts it: "Presenting non-GAAP financial measures can be a balancing act. Investors rely on such information to understand a company's performance and liquidity, and yet the SEC staff are focused on making sure that such measures do not undermine the presentation of a company's GAAP-based financial position and financial results."

How to Change a Non-GAAP Definition Without Triggering a Comment Letter

Changing a non-GAAP definition mid-year creates restatement-like optics and draws staff attention. The SEC's C&DIs are explicit: a non-GAAP measure that adjusts a charge in the current period but did not adjust similar charges in prior periods could violate Reg G Rule 100(b) unless the change is disclosed and the reasons explained. Depending on the significance of the change, prior-period measures may need to be recast.

Best practice when changing a definition:

1. Disclose the change explicitly, including the period it takes effect
2. Explain why the revised definition better reflects the company's performance or is more useful to investors
3. Recast prior-period non-GAAP figures under the new definition, or explain why recasting is impracticable
4. Update the usefulness disclosure to reflect the revised measure
5. Confirm the change is reflected in the DCP review process before the filing goes out

IFRS 18 and the Foreign Private Issuer Dimension

Foreign private issuers and cross-listed companies face a dual compliance obligation that is about to get more complex.

SEC Reg G and Item 10(e) apply to FPIs that file on Form 20-F or furnish earnings releases on Form 6-K. Hydro One's Q1 2026 MD&A illustrates the standard approach: explicit disclosure that non-GAAP measures "may not have a standardized meaning within U.S. GAAP" and "should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under U.S. GAAP," with full reconciliation to U.S. GAAP.

The new layer is IFRS 18, effective for annual periods beginning on or after January 1, 2027. IFRS 18 introduces "management performance measures" (MPMs), which are subtotals of income and expenses that management uses to communicate financial performance and that are not specified by IFRS. MPMs must be disclosed in a note to the financial statements with a reconciliation to the most directly comparable IFRS line item. For a detailed breakdown of how IFRS 18 works, see Finrep's IFRS 18 practical guide.

The compliance tension for dual reporters: a measure that qualifies as an MPM under IFRS 18 and is disclosed in the financial statement notes is also likely a non-GAAP measure under SEC rules when discussed outside the financial statements. The IOSCO Board updated its Statement on Non-GAAP Financial Measures in March 2026 specifically to address this interaction, noting that MPMs required to be disclosed in financial statement notes are within scope when disclosed outside those statements. The Canadian Securities Administrators have proposed amendments to NI 52-112 to address the same issue for Canadian issuers, with a comment period that closed February 11, 2026.

The FASB KPI Project: What It Could Mean for EBITDA and Free Cash Flow

The FASB's open Invitation to Comment on financial KPIs is the most consequential long-term development in this space, and almost no practitioner coverage addresses it.

The FASB issued an Invitation to Comment (ITC) on financial KPIs with a comment deadline of April 30, 2025. The ITC features specific examples including EBITDA, free cash flow, organic sales growth, and adjusted net income. No ASU has been issued as of mid-2026, confirming the project remains at the conceptual stage.

If the FASB moves forward, measures that companies currently present voluntarily as non-GAAP could become subject to GAAP-level standardization, with prescribed definitions, required disclosures, and auditor involvement. That would fundamentally change the flexibility that makes non-GAAP measures useful to companies in the first place. CFOs should monitor the FASB's project page and consider whether their current definitions of EBITDA and free cash flow would survive standardization.

2026 Non-GAAP Compliance Checklist

Run this against your next earnings release or SEC filing before it goes out.

Scope and identification

• Every numerical measure that excludes or includes amounts relative to the most directly comparable GAAP measure is identified as non-GAAP
• No measure is labeled with a GAAP term ("Gross Profit," "Sales") if it is calculated differently from the GAAP line item
• No measure is labeled "pro forma" unless it complies with Article 11 of Regulation S-X

Prominence (earnings releases and SEC filings)

• The most directly comparable GAAP measure appears before or at equal prominence to the non-GAAP measure in all tables and narrative
• The earnings release headline and opening summary do not lead exclusively with non-GAAP figures
• Reconciliation tables appear in the body of the release, not only in an appendix

Reconciliation

• A quantitative reconciliation is provided for each non-GAAP measure
• For forward-looking non-GAAP measures, either a reconciliation is provided or the "unreasonable efforts" exception is invoked with explanation
• Each line item in the reconciliation is labeled and described

Usefulness disclosure

• A statement explains why each non-GAAP measure is useful to investors, tailored to that specific measure
• A statement explains management's additional uses of the measure (compensation, debt covenants, internal targets)

Prohibited practices

• No non-GAAP measure appears on the face of a GAAP financial statement
• No charges are excluded without also excluding gains of the same nature in the same period
• No adjustment changes GAAP recognition or measurement principles (individually tailored accounting)
• No item characterized as non-recurring occurs repeatedly or occasionally in the company's operations

2026-specific adjustments

• Tariff-related exclusions are supported by a documented analysis of why the charge is non-recurring under Q 100.01
• AI/restructuring exclusions are not being applied to costs that have recurred across multiple periods
• ESG-linked exclusions are reviewed against the Q 100.01 "nature and effect" standard
• SBC exclusions are applied consistently across periods

Controls

• Non-GAAP measures are within scope of the company's DCPs
• A documented review process exists before each earnings release and SEC filing
• Changes to non-GAAP definitions are disclosed with prior-period recast figures

The Journal of Accountancy puts the stakes plainly: "Acquirers and auditors should take non-GAAP disclosures into account when assessing the integrity of management, especially when the disclosures inflate revenue or stakeholder equity." Non-GAAP compliance is not just a disclosure technicality. It is a signal about how management communicates with the market.

FAQ

Does Regulation G apply to investor presentations posted on our website? Yes. Reg G applies to any public disclosure by an SEC registrant, including website postings, investor day presentations, and social media posts that include non-GAAP measures. The most directly comparable GAAP measure and a reconciliation must be accessible, typically by linking to a document that contains them.

Can we exclude stock-based compensation from our non-GAAP measures? Yes, SBC exclusion is not prohibited. But the exclusion must be applied consistently across periods, the usefulness disclosure must explain why SBC is excluded for your specific business, and you cannot exclude SBC charges while including SBC-related gains or credits in the same period.

What happens if the SEC staff challenges our non-GAAP measure in a comment letter? The staff will typically ask you to either revise future filings to comply, recast prior-period non-GAAP figures, or discontinue the measure. In egregious cases, the SEC can refer the matter to enforcement. Responding promptly and substantively, with a clear explanation of your compliance analysis, is the standard approach. EY's Technical Line on non-GAAP measures covers the staff's review patterns in detail.

Do the same rules apply to non-GAAP measures used in debt covenant calculations? The measure itself may be defined in the credit agreement and not subject to SEC rules. But if you disclose that measure publicly, Reg G applies. And if the measure is used in executive compensation, the December 2022 C&DIs require that it be disclosed with the same prominence and reconciliation as other non-GAAP measures, with a statement of that additional use.

How does IFRS 18 affect our non-GAAP compliance if we report under IFRS and file with the SEC? IFRS 18's management performance measures framework, effective January 1, 2027, requires MPMs to be disclosed in a note to the financial statements. When those same measures are discussed outside the financial statements, SEC Reg G and Item 10(e) apply. You will need to ensure the IFRS 18 reconciliation in your financial statement notes and the SEC-required reconciliation in your MD&A or earnings release are consistent and mutually reinforcing.

Is the FASB's KPI project likely to affect how we define EBITDA? No ASU has been issued as of mid-2026. The project is at the Invitation to Comment stage following the April 30, 2025 comment deadline. If the FASB moves forward, it could impose standardized definitions for measures like EBITDA and free cash flow. Companies should monitor the FASB's project page and flag any definition that would conflict with a potential standard.