1. What is pro forma reporting according to regulation SX of the SEC? How has pro forma reporting been used by corporations over the years? Summarize the arguments for and against this type of...

Pro Forma reporting
Pro Forma reporting
Pro Forma reporting
1. What is pro forma reporting according to regulation SX of the SEC? How has pro
forma reporting been used by corporations over the years? Summarize the arguments for and
against this type of reporting.
According to regulation SX of the SEC, pro forma reporting refers to the quarterly
results of an organization with shares that are publicly traded which are formed in
compliance with the GAAP and with certain modifications. Their main characteristic is that
they exclude some of the items that need to be shown as a part of GAAP earnings. These
differences and exclusions are communicated through press releases and the reason for not
including it vary in each case.
Pro forma reporting was initially used to avoid the inclusions of certain losses in the
quarterly results since it could lead to negative impact on the stock price. Another way in
which it has been used is to avoid drastic changes in the last minute since the calculations are
done much before the actual release and too many changes are avoided. Then these left out
items are shown in the press release by the company.
The argument in favor of this type of reporting is that there is no actual harm since the
transparency is not manipulated. The left out items are reported at a later stage and it is also
beneficial to the companies since they can avoid sudden plunge in stock prices.
The argument against this type of reporting is that shareholders have a right to know
every little detail as they are the rightful owners of a company. Moreover several companies
may use the pro forma provisions as a loophole and hide certain facts which leads to
manipulated and distorted presentation of financial information.
Pro Forma reporting
2. Exhibits 1 and 2 provide sample earnings...