IA Watch Out for Pro Forma

—

—

—Watch Out for Pro Forma

—

Contents

Part One : Introduction.

Part Two : Definition of Pro Forma.

• —What is Pro Forma ?!
• —Pro Forma Financial Statement Definition

–Part Three : Why Pro Forma reporting ?!

• —Pro Forma Exclusions
• —Internal Use
• —Drawbacks
• —Advantages of Pro Forma Income Statements

Part Four : Conclusion.

===

—Part One : Introduction

—Pro forma reports are financial statements projecting expected business performance for a future period. Traditional financial statements such as the income statement, balance sheet and cash-flow statements reflect past performance and summarize historical data. Pro forma reports, on the other hand, are predictions of future expenses and revenues, based on past data and expected growth .

—Part Two : Definition of Pro Forma

What Is Pro Forma ?!

— The term pro forma, Latin for "as a matter of form" or "for the sake of form", is a term applied to practices or documents that are done as a pure formality. It has different meanings in different fields , Accounting , Business , Law , Engineering , Government , and International Trade .

—

Pro Forma Financial Statement Definition .

• ——The pro forma accounting is a statement of the company's financial activities while excluding "unusual and nonrecurring transactions" when stating how much money the company actually made.
• —Pro-forma financial statements are hypothetical financial reports that show either forecasts of or alterations to actual financial statements.
• —Pro forma financial statements show the financial statements of a company in a hypothetical scenario that has not yet been realized or that represents a modification of the actual financial statements.

—Part Three : Why Pro Forma reporting ?!

—There was a boom in the reporting of pro forma results in the USA starting in the late 1990s, with many dot-com companies using the technique to recast their losses as profits, or at least to show smaller losses than the US GAAP accounting showed.

—The U.S. Securities and Exchange Commission requires publicly traded companies in the United States to report US GAAP-based financial results, and has cautioned companies that using pro forma results to obscure US GAAP results would be considered fraud if used to mislead investors.

—

Pro Forma Exclusions :

——When used externally, investors and potential creditors should be wary of pro forma report characteristics. Pro forma reports are not created following GAAP guidelines, and exclude nonrecurring and one-time expenses, such as costs associated with mergers and acquisitions.

—

—The Pro Forma excludes unique events and charges , these events could include costs surrounding an acquisition or merger, or a write down of intangibles, such as depreciation and good will. These items are excluded since they are unique events that will not reoccur. As one-time events, the expenses would have little effect on a company’s ongoing cost structure.

—

—Even though a business may incur substantial expenses following a merger, the amount is neglected in forming a pro forma report to give investors a clearer view of future prospects.

—