The misuse or misleading use of non-GAAP measures remains a frequent topic of SEC staff comment letters, and commission officials at a conference last week once again sought to better explain what they expect to see when companies use these figures that are intended to better explain their results of operations.
Non-GAAP metrics are not required by SEC rules, but companies frequently provide them in earnings releases because investors often find them useful in understanding how management views its financial performance. But companies also use non-GAAP numbers because they tend to show better results than audited official GAAP figures would.
SEC staff members send comment letters to companies when they see inadequate or misleading information while reviewing disclosures.
“Perhaps someday we won’t be talking about that at the AICPA conference, but we certainly are not there yet,” Heather Rosenberger, chief accountant of the SEC’s Division of Corporation Finance (CorpFin) said at the AICPA Conference on Current SEC and PCAOB Developments in Washington on December 9, 2025.
Over the years, the staff have spoken at conferences and have made updates to compliance and disclosure interpretations (C&DIs) to help companies and their advisers think about how the staff apply the rules, the regulations, and the guidance on on-GAAP. In particular, Regulation G and Item 10(e) of Regulation S-K govern non-GAAP measures.
A key concern is that “companies don’t always understand why a non-GAAP measure that they disclose was deemed to be potentially misleading by the staff,” Rosenberger said.
Focus on Why Non-GAAP Measures Are Used
First off, Sarah Lowe, a deputy chief accountant in CorpFin, clarified that the staff do not update non-GAAP C&DIs annually. The staff, however, are always looking for meaningful ways to enhance staff interpretations to get the message across.
There will not be any new C&DIs this year, but Lowe sought to try something new at the conference: emphasizing the reasons why companies disclose some non-GAAP measures.
“Companies often disclose non-GAAP measures to provide investors with the measures used by management internally to analyze operating trends and compare financial performance from one period to the next,” Lowe said at the conference alongside Rosenberger.
“In our discussions with companies, we sometimes hear that management’s use is a reason to continue disclosing a potentially misleading non-GAAP measure. We also sometimes hear that a non-GAAP measure is not misleading as it is only disclosed because investors and other users of financial statements expect to see it,” Lowe explained.
She emphasized that the reasons why a measure is publicly disclosed generally do not on their own overcome the prohibitions in Regulation G, which requires companies to present with equal or greater prominence the most directly comparable financial measure from U.S. GAAP. Companies must also reconcile the differences between the non-GAAP financial measure with the most directly comparable financial measurement from GAAP. The companies must also disclose why they believe the non-GAAP measures provide useful information to investors about their financial conditions and results of operations.
“Now, of course, there are exceptions to many rules in life, and this is no different. For example, there’s a distinction for measures that are called out as exceptions in the rules,” such as measures related to material debt covenants, she said.
When Staff Comment Is Unclear, Call
“And on the subject of understanding why the staff concluded that a non-GAAP measure is potentially misleading: At past conferences, we’ve encouraged companies under review to call the staff reviewing their filings and other disclosures, discuss questions that they have about individual comments,” Lowe said. “If you receive a comment indicating that a non-GAAP measure you disclose was deemed to be misleading and you were unclear why that is the case, you should feel free to contact the staff reviewing your filing using the phone numbers provided in the comment letter… We’re happy to get on the phone again and make sure that that is clear.”
Correction and Transition Issues
SEC officials also explained what they expect when comment letters ask companies to fix non-GAAP measures as they are potentially misleading or a portion of the measures is otherwise not consistent with the rules. The fix would necessitate change in future filings.
“As we previously mentioned, it is generally the case that the non-GAAP measures, or an objectionable adjustment made in the reconciliation of these measures should be removed from a company’s disclosures immediately; that is, removed from the next filing and all future filings and other public disclosures, whether that be in an earnings release, 10-Q or 10-K, as well as any prior periods shown for the purpose of comparability,” Lowe said.
However, the staff also understand that there are circumstances that would make removing a non-GAAP measure or changing the way a measure is calculated too burdensome or impractical at that point in time.
“For example, if staff objects to a non-GAAP measure or adjustment just days before earnings are scheduled to be released, so depending on facts and circumstances and the nature of the measure or adjustment the staff is objecting to, it may not be unreasonable for a company to need additional time before removing a non-GAAP measure or changing the way a measure is calculated,” Lowe said.
She encouraged companies in this situation to contact the team that reviewed their disclosures.
“But to be clear, even in these types of situations where timing is a factor, the nature of the non-GAAP measure or the adjustment that’s being objected to may still necessitate an immediate change in disclosure,” she added. “We also continue to expect a change in disclosure to occur immediately when there is ample time for a company to communicate to investors that their disclosure is going to change.”
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