SEC Comment Letter Trends: Non-GAAP Measures in 2026

Non-GAAP financial measures have ranked among the top three SEC comment letter topics for at least nine consecutive years. In the survey year ended June 30, 2025, overall comment letter volume declined after two elevated years, but non-GAAP held its position as a dominant focus area. Fewer letters does not mean less risk: the staff is issuing more targeted, more specific comments, and the letters that do arrive are harder to resolve with a confirmatory response.

This guide maps the four specific comment patterns the staff is issuing right now, the exact C&DI provisions they cite, and a pre-filing checklist your SEC reporting team can run before the next 10-K or 10-Q goes out. For the broader 2026 comment letter picture, including the new tariff quantification and AI disclosure focus areas, see Finrep's SEC comment letter trends: seven issues and three new focus areas.

Why Non-GAAP Measures Keep Generating SEC Comment Letters

Non-GAAP measures sit at the intersection of investor communication and regulatory compliance, which makes them a perennial target. The SEC's authority here is clear and well-established: Regulation G (adopted 2003) covers every public disclosure of a non-GAAP measure, including earnings releases and investor presentations. Item 10(e) of Regulation S-K applies specifically to periodic filings. The 2016 Compliance and Disclosure Interpretations (C&DIs) remain the operative guidance and have not been superseded.

According to EY's SEC Reporting Update summarized by Mayer Brown, non-GAAP measures rank alongside MD&A and revenue recognition as the most frequently cited disclosure areas. Registrants with a public float over $100 million received 53% of all comment letters in the year ended June 30, 2025, but smaller registrants are not insulated: those under $75 million received 22% of letters, up from 21% the prior year.

Key takeaway: The staff's non-GAAP scrutiny applies across all filer sizes. A smaller reporting company presenting adjusted EBITDA in its earnings release faces the same Regulation G requirements as a large accelerated filer.

The Four Non-GAAP Comment Patterns the Staff Is Issuing Right Now

EY's 2025 survey identifies four specific comment categories dominating non-GAAP correspondence. Each maps to a named C&DI provision.

1. Undue Prominence

The most common trigger: presenting a non-GAAP measure before, or more visually prominently than, its GAAP equivalent.

C&DI Question 101.02 requires that the most directly comparable GAAP measure be presented with equal or greater prominence. In practice, the staff flags:

• Leading the MD&A results of operations section with adjusted EBITDA before net income
• Bolding or enlarging non-GAAP figures while GAAP figures appear in plain text
• Presenting a full "non-GAAP income statement" that substitutes non-GAAP figures for GAAP line items across the entire P&L
• Placing the non-GAAP reconciliation table after several pages of non-GAAP discussion

The non-GAAP income statement format is a specific staff focus in 2025-2026. It is treated as giving undue prominence to non-GAAP measures and creating a misleading impression of a complete alternative income statement, even when a reconciliation is technically present.

2. Inappropriate Reconciliation Starting Points

Starting an adjusted EBITDA reconciliation from operating income rather than net income is one of the most cited specific errors in comment letters.

C&DI Question 102.10 is explicit: when adjusted EBITDA is used as a liquidity measure, the reconciliation must begin from net income (loss), not operating income. The staff treats this as a substantive compliance failure, not a formatting preference. Comments also flag:

• Reconciling non-GAAP margins to a non-GAAP revenue base rather than GAAP revenue
• Omitting the tax effect of non-GAAP adjustments
• Presenting per-share non-GAAP liquidity measures, which are prohibited under C&DI Question 102.05

3. Misleading Adjustments That Exclude Recurring Expenses

Excluding costs that recur annually and labeling them "non-recurring" or "one-time" is a direct violation of C&DI Question 100.01.

The staff has applied this to stock-based compensation (SBC), restructuring charges that appear in consecutive annual periods, and acquisition-related costs at serial acquirers. The specific test: if an excluded item has occurred in the past two years or is reasonably likely to recur within two years, describing it as non-recurring, infrequent, or unusual is misleading.

In 2025-2026, the staff has extended this scrutiny to costs registrants strip out in response to macroeconomic conditions. A company that excludes "supply chain disruption costs" or "inflation-related inventory write-downs" from its non-GAAP measure faces heightened scrutiny about whether those costs are genuinely non-recurring or simply a way to present a cleaner earnings picture during a difficult operating environment.

4. Missing Quantitative Reconciliations for Forward-Looking Non-GAAP Measures

Providing forward-looking non-GAAP guidance without a quantitative reconciliation to the most comparable GAAP measure is a frequent comment trigger.

C&DI Question 102.10(b) requires a quantitative reconciliation unless the registrant cannot provide one without unreasonable effort. The "unreasonable efforts" exception is narrower than most registrants assume. To invoke it properly, the filing must:

1. Identify which specific line items are excluded from the reconciliation
2. Explain why each item cannot be quantified without unreasonable effort
3. Disclose the probable significance of each excluded item to the forward-looking measure

The staff frequently rejects boilerplate unreasonable efforts disclosures that simply state reconciliation is not possible "due to the uncertainty of future items." That language, without item-level specificity, does not satisfy the C&DI standard.

Non-GAAP Measures vs. KPIs: A Distinction the Staff Enforces

Mislabeling a non-GAAP financial measure as an operating metric or KPI to avoid reconciliation requirements is itself a comment trigger.

The distinction matters:

The SEC's C&DIs define a non-GAAP financial measure as any measure that includes or excludes amounts from the most comparable GAAP measure. A metric calculated entirely from GAAP inputs (like operating margin using GAAP revenue and GAAP operating income) is not a non-GAAP measure. But a metric that takes a GAAP line item and removes components of it, even if the company calls it a "KPI," is subject to Item 10(e) and Regulation G.

The staff has commented on registrants that present adjusted gross profit as a KPI without reconciliation, on the grounds that adjusted gross profit is derived from GAAP gross profit by excluding specific cost categories.

The Cross-Check Risk: Earnings Calls, Investor Presentations, and Filed Disclosures

The SEC staff reviews earnings call transcripts, investor presentations, and company websites for consistency with non-GAAP disclosures in periodic filings. This is not theoretical: EY's 2025 survey confirms the staff will "question inconsistencies" between public communications and filed documents.

Practical implications for disclosure consistency hygiene:

• The non-GAAP measure definition used on an earnings call must match the definition in the 10-Q filed for the same period
• If management discusses a non-GAAP measure on an investor day that does not appear in the periodic filing, the staff may ask why it was omitted from the filing
• Regulation G applies to earnings releases furnished on Form 8-K, meaning the reconciliation table in the press release must be present and accurate before the call happens
• Segment-level non-GAAP figures discussed externally but not disclosed in the filing create a specific inconsistency risk under ASC 280 and Item 10(e)

For companies managing multiple disclosure channels, the practical fix is a pre-earnings disclosure checklist that compares the non-GAAP definitions, adjustments, and reconciliations across the press release, the script, the slide deck, and the filed 10-Q before any of them go public.

Emerging Frontier: Crypto Metrics, AI KPIs, and ESG Measures

The staff is extending non-GAAP scrutiny to newer disclosure categories. Three areas warrant attention in 2026.

Crypto asset metrics. Registrants disclosing metrics like "adjusted yield on staked assets" or "net realized value of digital asset holdings" are receiving comments asking whether these constitute non-GAAP financial measures subject to Item 10(e). The C&DI framework applies: if the metric is derived from a GAAP financial statement line item by excluding or including components, it is a non-GAAP measure regardless of how it is labeled.

AI-related KPIs. The staff has issued comments requesting enhanced risk factor disclosures about the material effects of AI regulations on business plans, and has asked whether AI adoption metrics (e.g., "AI-assisted revenue," "cost savings from AI deployment") constitute non-GAAP measures requiring reconciliation. Companies that present AI-related financial metrics alongside GAAP results should apply the same definitional test.

ESG and sustainability metrics. This is an emerging and unresolved area. Metrics like "adjusted carbon cost per unit" or "sustainability-adjusted operating income" that are derived from GAAP financial statement components may fall within the non-GAAP definition. No SEC guidance has addressed this directly, but the antifraud provisions and MD&A disclosure requirements apply regardless of whether Item 10(e) does.

Key takeaway: If a metric modifies a GAAP financial statement line item by adding or removing components, apply the Item 10(e) and Regulation G framework before disclosing it, regardless of whether you call it a KPI, an ESG metric, or an operational measure.

Pre-Filing Non-GAAP Compliance Checklist

Run this checklist against every periodic filing and earnings release before submission. Each item maps to the specific C&DI provision the staff cites when it is violated.

Prominence (C&DI Q. 101.02)

• Does the GAAP equivalent appear before the non-GAAP measure in every section of the filing?
• Is the non-GAAP measure free of larger font, bold, or other visual treatment that exceeds the GAAP figure's prominence?
• Is there no full non-GAAP income statement substituting non-GAAP figures for GAAP line items?

Reconciliation starting point (C&DI Q. 102.10)

• Does the adjusted EBITDA reconciliation start from net income (loss), not operating income?
• Are non-GAAP margins reconciled to a GAAP revenue base, not a non-GAAP revenue base?
• Are per-share non-GAAP liquidity measures absent from the filing? (These are prohibited.)

Recurring expense test (C&DI Q. 100.01)

• Have any excluded items recurred in the past two fiscal years?
• Are any excluded items reasonably likely to recur within the next two years?
• If yes to either: is the item labeled "non-recurring," "infrequent," or "unusual"? If so, revise the label or remove the adjustment.
• For SBC and restructuring: is there a substantive explanation of why these items are excluded, beyond boilerplate?

Forward-looking non-GAAP (C&DI Q. 102.10(b))

• Does forward-looking non-GAAP guidance include a quantitative reconciliation to the most comparable GAAP measure?
• If invoking the unreasonable efforts exception: does the disclosure identify each excluded item by name and explain specifically why it cannot be quantified?

Labeling and description

• Does each non-GAAP measure have a clear, non-misleading label that distinguishes it from the GAAP equivalent?
• Does the filing explain why management believes the non-GAAP measure provides useful information to investors?
• Does the filing disclose any additional purposes for which management uses the measure?

Cross-check

• Do the non-GAAP definitions and adjustments in the filing match those used in the earnings release, earnings call script, and investor presentation for the same period?
• Are any non-GAAP measures discussed in public communications but absent from the filing? If so, assess whether they should be included.

How to Use EDGAR to Benchmark Your Non-GAAP Disclosures

The SEC's EDGAR full-text search lets you search publicly available comment letter correspondence by company, filing type, and date. This is an underused resource. Before filing, search for comment letters issued to peer companies in your industry using the term "non-GAAP" filtered to UPLOAD filings (which are the comment letters themselves). You will find verbatim staff language on the specific adjustments and labels your peers use, and you can assess whether your own disclosures would survive the same scrutiny.

PwC's SEC comment letter trends guide dedicates a standalone chapter to non-GAAP measures and is updated periodically to reflect current staff focus areas. It is a useful complement to the primary C&DI text.

FAQ

What is the difference between a non-GAAP financial measure and a KPI? A non-GAAP financial measure is derived from a GAAP financial statement line item by excluding or including components of it. A KPI or operating metric uses only GAAP inputs or only non-financial data. The distinction matters because non-GAAP measures are subject to Item 10(e) of Regulation S-K and Regulation G, which require reconciliation and equal-or-greater prominence for the GAAP equivalent. KPIs are not subject to Item 10(e), but they remain subject to MD&A disclosure requirements and antifraud provisions.

What GAAP starting point does the SEC require for an adjusted EBITDA reconciliation? Net income (loss), per C&DI Question 102.10. Starting from operating income is one of the most frequently cited specific errors in SEC comment letters on non-GAAP measures. The staff treats this as a substantive compliance failure, not a formatting issue.

Can we exclude stock-based compensation from our non-GAAP measures without getting a comment? Yes, but the exclusion requires a substantive explanation of why SBC is excluded and why management believes the resulting measure is useful to investors. The staff has commented on SBC exclusions where the explanation is boilerplate. If SBC is material and recurring, the staff may also question whether excluding it creates a misleading picture of cash operating costs under C&DI Question 100.01.

Does the unreasonable efforts exception for forward-looking non-GAAP reconciliations apply broadly? No. The exception is narrow. The filing must identify each excluded item by name and explain specifically why that item cannot be quantified without unreasonable effort. A general statement that "future items are uncertain" does not satisfy the standard. The staff has rejected boilerplate unreasonable efforts disclosures in multiple comment letters.

Do non-GAAP rules apply to earnings releases, or only to 10-K and 10-Q filings? Both. Regulation G applies to every public disclosure of a non-GAAP measure, including earnings releases furnished on Form 8-K, investor presentations, and earnings call materials. Item 10(e) applies specifically to periodic filings. An earnings release that presents non-GAAP EPS before GAAP EPS, or omits a reconciliation table, is subject to comment under Regulation G.

What should we do if we receive an SEC comment letter on our non-GAAP measures? The staff typically requests a response within 10 business days, though extensions are available on request. A substantive explanation of your non-GAAP methodology, mapped directly to the C&DI provisions the staff cited, often resolves the comment without a filing amendment. If the staff's concern is about a specific label or adjustment, offering to revise the disclosure prospectively in the next filing is a common resolution path. All resolved comment letter correspondence is made public on EDGAR no sooner than 20 business days after the staff completes its review.