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Voluntary Disclosure Practices: The Use Of Pro Forma Reporting

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  • Gary Entwistle
  • Glenn Feltham
  • Chima Mbagwu

Abstract

This article looks at how U.S. managers supplement GAAP earnings with pro forma reporting. Pro forma measures, which are not audited, are typically determined through an adjustment to GAAP‐based earnings. For example, a manager may choose to present an alternative to GAAP earnings that excludes period write‐offs and one‐time restructuring charges in order to present a more value‐relevant picture of the company's performance. The authors find that 77% of S&P 500 companies report pro forma results, and that pro forma measures are generally given greater prominence than GAAP earnings in corporate press releases. Based on the evidence, U.S. managers are using pro forma reporting strategically to affect investor perception of corporate performance. The SEC has recently issued rules to ensure that pro forma disclosure is not misleading. The authors present some guidelines on voluntary disclosure that might help forestall further regulation and preserve the ability to pursue this potentially informative practice.

Suggested Citation

  • Gary Entwistle & Glenn Feltham & Chima Mbagwu, 2004. "Voluntary Disclosure Practices: The Use Of Pro Forma Reporting," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(2‐3), pages 73-80, March.
    • Handle: RePEc:bla:jacrfn:v:16:y:2004:i:2-3:p:73-80
    DOI: 10.1111/j.1745-6622.2004.tb00539.x
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