Pro Forma Adjustments To Gaap Earnings
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| Author | : Nancy B. Nichols |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2005 |
| Genre | : |
| ISBN | : |
The Securities and Exchange Commission (SEC) issued Regulation G (implementing Section 401 (b) of the Sarbanes-Oxley Act of 2002) in 2003 subsequent to its warning in December 2001 about reporting misleading non-GAAP or pro forma results. This research provides a longitudinal analysis of the earnings releases of a sample of companies reporting pro forma results from 1999 through 2004, especially in the context of recent SEC action. The research examines (1) the specific items included in pro forma adjustments and their frequency, (2) the extent of materiality or magnitude of the adjustments compared to GAAP, and (3) the stated rationale for the adjustments. The research also specifically addresses the impact of the SEC's recent guidance and the extent to which Regulation G has modified pro forma reporting behavior. Our findings indicate pro forma adjustments have continued to be systematically biased in recent years to show significantly higher earnings compared to GAAP earnings and that the magnitude of such differences is highly material. While SEC action, particularly Regulation G, appears to have greatly reduced the number of companies disclosing non-GAAP financial measures and has improved transparency, a significant number of companies continue to make adjustments that are likely of concern to the SEC.
| Author | : Michael Interdonato |
| Publisher | : |
| Total Pages | : |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
This paper seeks to determine the ability of pro forma earnings to improve predictability and comparability. The primary research question focuses on determining whether pro forma adjustments remove temporary items from reported GAAP as they are meant to do. I find that pro forma adjustments do in fact remove temporary items from reported GAAP and therefore improve their ability to predict future earnings. However, GAAP earnings also add value when predicting future earnings, which shows that these pro forma adjustments remove permanent items at times as well. The secondary research question focuses on determining when pro forma adjustments improve predictability and when they do not. I find that pro forma adjustments improve predictability of future earnings in times when companies are performing poorly, represented in this paper by times in which sales are decreasing or times in which market value is decreasing. However, they fail to improve predictability of future earnings in times when companies are performing well, represented in this paper by times in which sales are increasing or times in which market value is increasing. The tertiary research question focuses on determining how comparable pro forma earnings are when conducting ratio analysis across companies. I find that a measure of operating earnings, which removes extraordinary items, depreciation and amortization, income taxes, and interest and related expenses from GAAP earnings, is generally the best earnings measure to use when focusing on comparability of ratios across companies followed by pro forma earnings and finally GAAP earnings. As expected, because pro forma adjustments are typically made in an effort to report a more accurate EPS value, pro forma earnings are the best measure of earnings to use when focusing on comparability specifically related to earnings per share.
| Author | : Theodore E. Christensen |
| Publisher | : |
| Total Pages | : 34 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
The practice of reporting manager-adjusted 'pro forma' earnings numbers in quarterly earnings press releases has attracted considerable attention in recent years. Prior research suggests that while some managers report these adjusted numbers to better reflect core earnings, others may use these earnings adjustments to meet strategic earnings benchmarks on a pro forma basis when they fall short based on GAAP reporting standards. The difficulty lies in distinguishing the 'good guys' from the 'bad guys.' Using hand-collected pro forma earnings data, we investigate the extent to which different types of earnings adjustments affect the spread between pro forma earnings and GAAP earnings from continuing operations. Moreover, we investigate which types of adjustments managers use to meet strategic earnings benchmarks. In addition to the exclusion of one-time items like restructuring charges, the results indicate that managers often exclude recurring expenses such as research and development, depreciation, and stock-based compensation to meet these strategic benchmarks. The exclusion of recurring items is especially indicative of manager opportunism in pro forma reporting.
| Author | : AICPA |
| Publisher | : John Wiley & Sons |
| Total Pages | : 256 |
| Release | : 2017-06-12 |
| Genre | : Business & Economics |
| ISBN | : 194354686X |
This resource provides interpretive guidance and implementation strategies for all preparation, compilation examination and agreed upon procedures on prospective financial information: Helps with establishing proven best-practices. Provides practical tools and resources to assist with compliance. Exposes potential pitfalls associated with independence and ethics requirements. SSAE No. 18 SSARS No. 23 Preparation and compilation engagements now fall under the SSARSs The attestation engagements require an assertion from the responsible party
| Author | : Robert M. Bowen |
| Publisher | : |
| Total Pages | : 45 |
| Release | : 2005 |
| Genre | : |
| ISBN | : |
Earnings press releases provide managers a forum to present their firm's quarterly financial information and perhaps influence perceptions of the firm's stakeholders. We explore the use of managerial emphasis as a disclosure tool and contribute to the debate over pro forma earnings. We examine (1) the determinants of emphasis placed on pro forma and GAAP earnings within quarterly earnings press releases, (2) whether there has been a shift away from emphasizing pro forma earnings toward GAAP earnings, and (3) whether stock market reactions to earnings news were influenced by emphasis placed on metrics within the press release. We find that firms emphasize metrics that are more value-relevant and portray more favorable firm performance. We also find that the extent of a firm's media coverage affects managers' emphasis decisions. Further, our results indicate a highly significant shift toward GAAP emphasis and away from pro forma emphasis in 2002 relative to 2001. Finally, our stock market tests suggest that greater emphasis on an earnings metric results in a stronger market reaction to the surprise in that metric. Overall, these findings are consistent with managers using emphasis in the earnings press release as a disclosure tool and this emphasis influencing at least one important stakeholder group - investors.
| Author | : |
| Publisher | : |
| Total Pages | : 20 |
| Release | : 2010-12 |
| Genre | : Accounting |
| ISBN | : |
| Author | : Jeff Coulton |
| Publisher | : |
| Total Pages | : |
| Release | : 2016-11-24 |
| Genre | : |
| ISBN | : 9780994369734 |
| Author | : |
| Publisher | : |
| Total Pages | : |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Pro forma figures are adjusted GAAP measures published voluntarily by companies. Previous research showed that the use of these figures was widespread. The present study focuses on pro forma measures disclosed on the Swiss capital market between 2004 and 2013. Pro forma measures published by companies listed in the SMI index were collected by hand from the "Key figures" sections of their annual reports. Our results show that the use of pro forma figures by firms listed in the SMI index is common over the period studied. Furthermore, most adjustments made to pro forma figures were income increasing. The transparency of these figures, especially of modified pro forma measures, was however not always guaranteed. Furthermore, labels used for these figures were sometimes misleading. Finally, we show that changes of CFO, changes of auditor and the publication of negative GAAP earnings tend to increase the number of modified pro forma figures published. On the other hand, changes of accounting standards, changes of CEO and changes of person in charge of the audit tend to decrease the number of modified pro forma measures disclosed.
| Author | : Gary Previts |
| Publisher | : Elsevier |
| Total Pages | : 378 |
| Release | : 2006-01-27 |
| Genre | : Business & Economics |
| ISBN | : 0080462812 |
The scope of service provided by professional accountants is influenced by legislation and case law as well as the dictates of a variety of government and private sector agencies; including State Boards of Accountancy, Academic Accreditation Bodies, the United States Securities and Exchange Commission, the Public Accounting Oversight Board, independent standard setting bodies such as the Federal Accounting Standards Advisory Board [US], the Financial Accounting Standards Board [US] and the International Accounting Standards Board. These entities and self-regulatory organizations such as U.S. State Societies of CPAs and the American Institute of Certified Public Accountants and equivalent and emerging national bodies that exist in most developed and developing countries, are among the emerging entities which attempt to coordinate the activities of professional accountants among sovereign nations. It is important for academics, students, practitioners, regulators and researchers to consider and study the role and relationship of such bodies with the practice and content of our discipline. Research in Accounting Regulation seeks high quality manuscripts which address accounting regulatory policy, broadly defined, including: 1. self regulatory activities 2. case law and litigation 3. legislation and government regulation 4. the economics of regulation of markets, and disclosure, including modeling 5. matters involving the structure of education, licensing, and accreditation The editors encourage submission of original empirical, behavioral or applied research manuscripts which consider strategic and policy implications for regulation, regulatory models and markets. It is intended for individual researchers, practitioners, regulators and students of accountancy who desire to increase their understanding of the regulation of accountancy.
| Author | : Mark T Bradshaw |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
By analyzing a carefully constructed earnings announcements sample that discloses a 'pro forma' earnings number, Bhattacharya, Black, Christensen, and Larson (2002) contribute to recent research documenting increasing differences between GAAP earnings and alternative earnings definitions followed by capital markets. The paper provides interesting descriptive data on pro forma earnings per share relative to both GAAP earnings per share and actual earnings per share as tracked by I/B/E/S. Also, the authors conduct tests of the relative informativeness and persistence of these three earnings measures. Econometric and data limitations inhibit the inferences that can be drawn from some of these tests.
