Corp Fin’s focus on disclosure thoroughness, transparency

While Corp Fin has a transformative rulemaking agenda ahead, today's panel was intentionally grounded in the present. By illuminating common preparer foot faults with concrete examples, Corp Fin staff offered more than just guidance; they provided a clear path for companies to elevate their filings and disclosures now. This approach aims to sharpen today's reporting quality, even as the broader policy agenda moves forward.

Erin McCloskey

KPMG SEC Regulatory Matters Alternate Topic Team Leader

Staff scrutiny of segment reporting intensified in 2025 due to ASU 2023-07’s requirement to disclose significant segment expenses.

Segment disclosure expectations

Corp Fin staff explained their expectations regarding three segment disclosure issues.

First, Jarrett Torno described that companies are required to reconcile total segment profit or loss to consolidated net income before tax with the total of reportable segments’ measure of profit or loss. However, the staff have observed that some companies include corporate and other allocations, non-reportable segments or other adjustments in the total of reportable segment profit or loss rather than as reconciling items. This effectively creates a non-GAAP measure, which is prohibited in the financial statements.

Second, Melissa Raminpour stressed that single segment companies must provide all required segment disclosures, even if some details appear elsewhere in the financial statements. Duplicate disclosures aren't necessary, but companies should clearly disclose items such as the Chief Operating Decision Maker's (CODM’s) identity, how profitability is measured and used, and any significant expenses reported to the CODM. If requirements are met by referencing other sections (like the income statement), it's best practice to note this explicitly in the segment disclosures to enhance transparency for users and the SEC.

Third, Torno stressed that companies must disclose the segment profit or loss measure ‘closest to GAAP’. If multiple profitability measures are reviewed by the CODM, the measure closest to GAAP is the required measure. The staff expects that amongst multiple GAAP measures, the one with more GAAP line items is closest to GAAP. When multiple non-GAAP measures are reviewed, judgment is required. The staff expects that the measure closest to GAAP will typically have fewer adjustments and include more revenue and expense line items.

See a replay of our SEC comment letters webcast highlighting segment and other comment letter trends.

The SEC’s comments highlight that the easiest way to avoid a Corp Fin comment is to provide clear, company-specific, decision‑useful disclosure. Explicitly explain how each disclosure requirement is met and, if a primary financial statement or another note already satisfies the requirement, cross‑reference the exact location so reviewers and users can find it.

Melissa Rocha

KPMG Partner, Department of Professional Practice

The staff continues to object to non-GAAP measures they deem misleading, regardless of management's internal use or perceived investor and analyst demand. Therefore, the staff won’t accept an argument that a measure is not misleading if it is disclosed solely because investors and other financial statement users expect to see it. The staff clarified that reasons for a measure's public disclosure generally do not, on their own, overcome the prohibitions in Regulation G. However, exceptions to this general rule exist (e.g. GAAP requires disclosure).

When the staff objects to a non-GAAP measure, the historical expectation is for its immediate removal from all future disclosures, including for comparative prior periods. However, the staff indicated that if its immediate removal or revision is overly burdensome or impracticable (e.g. within days of an earnings release), companies are advised to contact their SEC filing review team.

The Corp Fin staff updated the Financial Reporting Manual (FRM) for the third time this year, a notable acceleration after many years without major changes. In addition, Sarah Lowe, Deputy Chief Accountant of Corp Fin OCA, highlighted that a number of C&DIs were updated this year, mostly to reflect changes in rules, but also to clarify staff views on SRC filer status, amongst other topics.

A deeper dive on the updates

The latest revisions to the FRM, released on December 5, 2025, primarily align the FRM with the final SPAC rule, which took effect on July 1, 2024. Earlier this year, the June updates reorganized and updated multiple sections of the manual into a comprehensive section on acquisitions and dispositions of businesses, while the August update also made changes for rules finalized in 2021 related to MD&A, selected financial data and supplementary financial information. Heather Rosenberger announced that the FRM is now current.

See our Defining Issues on the FRM updates.

One C&DI the staff highlighted clarifies that a company that no longer qualifies as a smaller reporting company (SRC) under the revenue test is provided targeted transition relief from qualifying for accelerated or large accelerated filer status. This transition relief is not available to companies that qualified under the public float test and subsequently lose SRC status. The C&DI underscores the importance of proactively monitoring revenue and public float thresholds because companies should not assume that a grace period applies in all circumstances.

To learn more, read KPMG Defining Issues, SEC clarifies filer status upon loss of SRC status

Questions about predecessor determination have increased with the rise in spinoffs and put-together transactions. These questions focus on whether a registrant succeeds to substantially all of an assumed or acquired business, and its prior operations appear insignificant. Determining the predecessor is complex and depends on the transaction’s nature, structure and history. Key factors include legal form and historical operations, such as whether investors previously saw separate results for the spun business.

The staff explained one fact pattern in which a registrant spun off a single business line historically commingled across hundreds of entities. The staff did not object to limiting predecessor financial statements to the spun assets, liabilities and operations. This was because including full historical results would have distorted the financial picture.

In contrast, another staff example involved a registrant that spun off a legal entity that operated all business lines in a foreign country. In that case, the staff concluded that predecessor financial statements should reflect the entity’s entire historical results, with Article 11 pro forma information presenting adjustments for retained operations.

With respect to license arrangements and IP acquisitions, in particular relative to the life sciences industry, the staff indicated these may represent a business acquisition for reporting purposes, making the licensor (or a carve-out) the predecessor. Companies need to consider factors such as the development stage of the candidate (discovery versus clinical) and the license terms.

Lastly, the predecessor is generally the accounting acquirer. However, in put-together transactions a new registrant may be the accounting acquirer while one or more acquired businesses serve as predecessors because the new registrant’s operations are insignificant. Factors include acquisition timing, fair value, size and management structure.

Reminders on financial statement presentation requirements

The staff provided general financial statement presentation reminders stemming from recent observations through filing reviews, including the following:

Consider whether the statement of cash flows is sufficiently detailed and does not improperly net or aggregate dissimilar items.
Annually review revenue and expense line items for compliance with S-X Rule 5-03 income statement presentation, especially when business activities change (e.g. new products or services are introduced).
Separately present revenue from tangible products and services if they represent more than 10% of net sales. For software companies, revenue from licenses (point-in-time) should be shown separately from services like post-contractual support or SaaS offerings (over-time).
Present all material related-party amounts on the face of the balance sheet, income statement and statement of cash flows under S-X Rule 4-08(k).

Footnote:

2025 AICPA Conference on Current SEC and PCAOB Developments

KPMG Private

Relevant Results

Segment reporting under ASU 2023-07

Segment disclosure expectations

Non-GAAP scrutiny remains high with no tolerance for 'misleading' measures

Updates to staff guidance

A deeper dive on the updates

Predecessor financial statements: Key considerations for complex transactions

Reminders on financial statement presentation requirements

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