2 0 2 0 2 7 L AT E S T V E R S I O N | W A L L S T R E E T P R E P
C E R T I F I C AT I O N
Interpreting
Non-GAAP Reports
Examination
50 exam questions with 100% correct answers and
detailed rationales covering non-GAAP reporting
framework, EBITDA analysis, reconciliation methods,
and advanced financial modeling integration.
50 Questions | Graded A+ | Brand New
Purpose and Regulatory Framework (Q1-Q10) | Non-Recurring Items (Q11-
Q20)
Non-Cash Items and EBITDA (Q21-Q35) | Reconciliation Analysis (Q36-
Q45)
Advanced Non-GAAP Issues (Q46-Q50)
WA L L S T R E E T P R E P E X A M P R E PA R AT I O N
, Interpreting Non-GAAP Reports Exam | 2026/2027 Edition
50 Exam Questions with 100% Verified Answers | Wall Street Prep Aligned
Section 1: Purpose and Regulatory Framework of Non-GAAP Reporting
Non-GAAP vs. GAAP, SEC Regulation G/S-K, Motivations for Non-GAAP Disclosure
Q1: Under SEC Regulation G, which of the following best describes the primary purpose of requiring companies to
reconcile non-GAAP financial measures to the most directly comparable GAAP measure?
A. To eliminate all subjective management estimates from reported earnings
B. To ensure investors can evaluate the non-GAAP measure relative to GAAP results and understand the adjustments
made [CORRECT]
C. To prevent companies from disclosing any financial metrics beyond those required by GAAP
D. To standardize the calculation methodology for non-GAAP measures across all public companies
Correct Answer: B
Rationale: Regulation G requires reconciliation to the most directly comparable GAAP measure so investors understand what adjustments
management made and can assess whether the non-GAAP metric provides a useful supplement. It does not eliminate subjective estimates (A)
or prohibit non-GAAP disclosure (C), nor does it standardize calculation methodology (D), which remains at management's discretion.
Q2: A company reports adjusted net income of $850 million after adding back $120 million in restructuring charges and
$30 million in stock-based compensation. Under SEC Regulation S-K Item 10(e), which of the following adjustments
would most likely be considered impermissible?
A. Adding back a one-time legal settlement expense of $40 million that is directly related to the company's core operations
[CORRECT]
B. Adding back the $120 million in restructuring charges related to a plant closure
C. Adding back the $30 million in stock-based compensation expense
D. Presenting both adjusted net income and GAAP net income with equal prominence in the earnings press release
Correct Answer: A
Rationale: Under Item 10(e), adjustments that exclude charges that are ongoing or related to the company's core business operations are
generally impermissible. A legal settlement directly related to core operations is not a non-recurring item and should not be added back.
Restructuring charges (B) and SBC (C) are commonly presented adjustments (though SBC add-backs are subject to scrutiny), and equal
prominence (D) is required by Regulation G.
Q3: Which of the following best explains why management teams commonly provide non-GAAP financial measures in
addition to GAAP reporting?
A. Non-GAAP measures are required by the SEC as a substitute for GAAP financial statements
B. Non-GAAP measures are intended to present a view of core operating performance by removing items that management
believes do not reflect ongoing operations [CORRECT]
C. Non-GAAP measures eliminate all accounting estimates and judgments from financial reporting
D. Non-GAAP measures provide a more conservative view of a company's financial position than GAAP
Correct Answer: B
Rationale: The primary purpose of non-GAAP disclosure is to supplement GAAP by removing items management considers non-recurring
or not reflective of ongoing operations, thereby providing investors with a view of core performance. Non-GAAP measures are not a GAAP
substitute (A), cannot eliminate all estimates (C), and often present a more favorable (not more conservative) view than GAAP (D).
Q4: Under SEC rules, when a company presents a non-GAAP financial measure in an earnings release, which of the
following is required regarding the GAAP measure?
A. The GAAP measure must be presented, but may be de-emphasized relative to the non-GAAP measure
B. The GAAP measure must be given equal or greater prominence than the non-GAAP measure [CORRECT]
C. The GAAP measure is only required if the company chooses to present it
Interpreting Non-GAAP Reports Exam | 2026/2027 | 50 Questions | Page 1
, D. The GAAP measure must be presented in a separate filing from the non-GAAP measure
Correct Answer: B
Rationale: Both Regulation G and Item 10(e) of Regulation S-K require that GAAP measures be given equal or greater prominence than any
non-GAAP measure. This prevents companies from burying or de-emphasizing GAAP results in favor of more favorable non-GAAP metrics.
Options A, C, and D all violate this requirement.
Q5: A CFO presents 'adjusted EBITDA' that excludes restructuring charges, acquisition-related costs, and litigation
expenses. According to the SEC's guidance on non-GAAP measures, which principle is most critical when evaluating
whether these adjustments are appropriate?
A. Each adjustment must be material in amount (exceeding 5% of total revenue)
B. Each adjustment must reflect items that are non-recurring, unusual, or infrequent in nature and not indicative of future
operations [CORRECT]
C. All adjustments must be approved by the company's external auditors before disclosure
D. Adjustments can only include items classified as extraordinary under GAAP
Correct Answer: B
Rationale: The SEC evaluates whether non-GAAP adjustments are appropriate by assessing whether each adjustment reflects items that are
genuinely non-recurring, unusual, or infrequent and not expected to recur. There is no specific materiality threshold (A), auditor pre-approval
is not required (C), and the concept of extraordinary items was eliminated under GAAP (ASU 2015-01), making (D) incorrect.
Q6: Which of the following correctly distinguishes between the two broad categories of non-GAAP adjustments covered
in the Wall Street Prep Interpreting Non-GAAP Reports curriculum?
A. Operating vs. non-operating adjustments
B. Recurring vs. non-recurring adjustments
C. Non-recurring items (one-time events) and non-cash items (depreciation, amortization, stock-based compensation)
[CORRECT]
D. Above-the-line vs. below-the-line adjustments
Correct Answer: C
Rationale: The WSP curriculum identifies two broad categories of non-GAAP adjustments: (1) non-recurring items such as restructuring
charges and gains/losses on asset sales, which are one-time events, and (2) non-cash items such as depreciation, amortization, and
stock-based compensation. While other categorizations exist, this is the framework specifically emphasized in the Wall Street Prep course.
Q7: A technology company excludes stock-based compensation from its non-GAAP operating income. Which of the
following best describes the SEC's historical and current position on this practice?
A. The SEC has always permitted SBC add-backs without any conditions
B. The SEC has consistently challenged SBC add-backs and considers them impermissible
C. The SEC has historically scrutinized SBC add-backs and issued comment letters, but the practice remains widespread as
companies argue SBC is a non-cash expense that does not reflect cash operating costs [CORRECT]
D. The SEC prohibits SBC add-backs only for technology companies
Correct Answer: C
Rationale: The SEC has historically scrutinized SBC add-backs through comment letters, questioning whether SBC is truly non-recurring
given that companies repeatedly grant equity compensation. However, the practice remains widespread because companies argue that SBC is
a non-cash expense and that the economic cost is already reflected in diluted share count. The SEC has not issued an outright prohibition but
continues to evaluate on a case-by-case basis.
Q8: Which of the following statements regarding the relationship between GAAP and non-GAAP financial measures is
most accurate according to the WSP Interpreting Non-GAAP Reports curriculum?
A. GAAP is a supplementary reporting framework while non-GAAP is the primary standard
B. Non-GAAP measures are standardized by the SEC and must follow prescribed calculation methods
C. GAAP is the standardized reporting standard; non-GAAP metrics are supplementary measures designed to present a
more accurate picture of core operations [CORRECT]
D. Non-GAAP measures must always be higher than their GAAP equivalents
Interpreting Non-GAAP Reports Exam | 2026/2027 | 50 Questions | Page 2
C E R T I F I C AT I O N
Interpreting
Non-GAAP Reports
Examination
50 exam questions with 100% correct answers and
detailed rationales covering non-GAAP reporting
framework, EBITDA analysis, reconciliation methods,
and advanced financial modeling integration.
50 Questions | Graded A+ | Brand New
Purpose and Regulatory Framework (Q1-Q10) | Non-Recurring Items (Q11-
Q20)
Non-Cash Items and EBITDA (Q21-Q35) | Reconciliation Analysis (Q36-
Q45)
Advanced Non-GAAP Issues (Q46-Q50)
WA L L S T R E E T P R E P E X A M P R E PA R AT I O N
, Interpreting Non-GAAP Reports Exam | 2026/2027 Edition
50 Exam Questions with 100% Verified Answers | Wall Street Prep Aligned
Section 1: Purpose and Regulatory Framework of Non-GAAP Reporting
Non-GAAP vs. GAAP, SEC Regulation G/S-K, Motivations for Non-GAAP Disclosure
Q1: Under SEC Regulation G, which of the following best describes the primary purpose of requiring companies to
reconcile non-GAAP financial measures to the most directly comparable GAAP measure?
A. To eliminate all subjective management estimates from reported earnings
B. To ensure investors can evaluate the non-GAAP measure relative to GAAP results and understand the adjustments
made [CORRECT]
C. To prevent companies from disclosing any financial metrics beyond those required by GAAP
D. To standardize the calculation methodology for non-GAAP measures across all public companies
Correct Answer: B
Rationale: Regulation G requires reconciliation to the most directly comparable GAAP measure so investors understand what adjustments
management made and can assess whether the non-GAAP metric provides a useful supplement. It does not eliminate subjective estimates (A)
or prohibit non-GAAP disclosure (C), nor does it standardize calculation methodology (D), which remains at management's discretion.
Q2: A company reports adjusted net income of $850 million after adding back $120 million in restructuring charges and
$30 million in stock-based compensation. Under SEC Regulation S-K Item 10(e), which of the following adjustments
would most likely be considered impermissible?
A. Adding back a one-time legal settlement expense of $40 million that is directly related to the company's core operations
[CORRECT]
B. Adding back the $120 million in restructuring charges related to a plant closure
C. Adding back the $30 million in stock-based compensation expense
D. Presenting both adjusted net income and GAAP net income with equal prominence in the earnings press release
Correct Answer: A
Rationale: Under Item 10(e), adjustments that exclude charges that are ongoing or related to the company's core business operations are
generally impermissible. A legal settlement directly related to core operations is not a non-recurring item and should not be added back.
Restructuring charges (B) and SBC (C) are commonly presented adjustments (though SBC add-backs are subject to scrutiny), and equal
prominence (D) is required by Regulation G.
Q3: Which of the following best explains why management teams commonly provide non-GAAP financial measures in
addition to GAAP reporting?
A. Non-GAAP measures are required by the SEC as a substitute for GAAP financial statements
B. Non-GAAP measures are intended to present a view of core operating performance by removing items that management
believes do not reflect ongoing operations [CORRECT]
C. Non-GAAP measures eliminate all accounting estimates and judgments from financial reporting
D. Non-GAAP measures provide a more conservative view of a company's financial position than GAAP
Correct Answer: B
Rationale: The primary purpose of non-GAAP disclosure is to supplement GAAP by removing items management considers non-recurring
or not reflective of ongoing operations, thereby providing investors with a view of core performance. Non-GAAP measures are not a GAAP
substitute (A), cannot eliminate all estimates (C), and often present a more favorable (not more conservative) view than GAAP (D).
Q4: Under SEC rules, when a company presents a non-GAAP financial measure in an earnings release, which of the
following is required regarding the GAAP measure?
A. The GAAP measure must be presented, but may be de-emphasized relative to the non-GAAP measure
B. The GAAP measure must be given equal or greater prominence than the non-GAAP measure [CORRECT]
C. The GAAP measure is only required if the company chooses to present it
Interpreting Non-GAAP Reports Exam | 2026/2027 | 50 Questions | Page 1
, D. The GAAP measure must be presented in a separate filing from the non-GAAP measure
Correct Answer: B
Rationale: Both Regulation G and Item 10(e) of Regulation S-K require that GAAP measures be given equal or greater prominence than any
non-GAAP measure. This prevents companies from burying or de-emphasizing GAAP results in favor of more favorable non-GAAP metrics.
Options A, C, and D all violate this requirement.
Q5: A CFO presents 'adjusted EBITDA' that excludes restructuring charges, acquisition-related costs, and litigation
expenses. According to the SEC's guidance on non-GAAP measures, which principle is most critical when evaluating
whether these adjustments are appropriate?
A. Each adjustment must be material in amount (exceeding 5% of total revenue)
B. Each adjustment must reflect items that are non-recurring, unusual, or infrequent in nature and not indicative of future
operations [CORRECT]
C. All adjustments must be approved by the company's external auditors before disclosure
D. Adjustments can only include items classified as extraordinary under GAAP
Correct Answer: B
Rationale: The SEC evaluates whether non-GAAP adjustments are appropriate by assessing whether each adjustment reflects items that are
genuinely non-recurring, unusual, or infrequent and not expected to recur. There is no specific materiality threshold (A), auditor pre-approval
is not required (C), and the concept of extraordinary items was eliminated under GAAP (ASU 2015-01), making (D) incorrect.
Q6: Which of the following correctly distinguishes between the two broad categories of non-GAAP adjustments covered
in the Wall Street Prep Interpreting Non-GAAP Reports curriculum?
A. Operating vs. non-operating adjustments
B. Recurring vs. non-recurring adjustments
C. Non-recurring items (one-time events) and non-cash items (depreciation, amortization, stock-based compensation)
[CORRECT]
D. Above-the-line vs. below-the-line adjustments
Correct Answer: C
Rationale: The WSP curriculum identifies two broad categories of non-GAAP adjustments: (1) non-recurring items such as restructuring
charges and gains/losses on asset sales, which are one-time events, and (2) non-cash items such as depreciation, amortization, and
stock-based compensation. While other categorizations exist, this is the framework specifically emphasized in the Wall Street Prep course.
Q7: A technology company excludes stock-based compensation from its non-GAAP operating income. Which of the
following best describes the SEC's historical and current position on this practice?
A. The SEC has always permitted SBC add-backs without any conditions
B. The SEC has consistently challenged SBC add-backs and considers them impermissible
C. The SEC has historically scrutinized SBC add-backs and issued comment letters, but the practice remains widespread as
companies argue SBC is a non-cash expense that does not reflect cash operating costs [CORRECT]
D. The SEC prohibits SBC add-backs only for technology companies
Correct Answer: C
Rationale: The SEC has historically scrutinized SBC add-backs through comment letters, questioning whether SBC is truly non-recurring
given that companies repeatedly grant equity compensation. However, the practice remains widespread because companies argue that SBC is
a non-cash expense and that the economic cost is already reflected in diluted share count. The SEC has not issued an outright prohibition but
continues to evaluate on a case-by-case basis.
Q8: Which of the following statements regarding the relationship between GAAP and non-GAAP financial measures is
most accurate according to the WSP Interpreting Non-GAAP Reports curriculum?
A. GAAP is a supplementary reporting framework while non-GAAP is the primary standard
B. Non-GAAP measures are standardized by the SEC and must follow prescribed calculation methods
C. GAAP is the standardized reporting standard; non-GAAP metrics are supplementary measures designed to present a
more accurate picture of core operations [CORRECT]
D. Non-GAAP measures must always be higher than their GAAP equivalents
Interpreting Non-GAAP Reports Exam | 2026/2027 | 50 Questions | Page 2
