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Pro Forma Case Summary

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Pro Forma Case Summary
This memo provides some information regarding the examination that Gary M. Entwistle, Glenn D. Feltham, and Chima Mbagu performed to see the influence of pro forma regulation toward firm’s reporting practice. The type of firms used in the examination are S&P 500 companies, specifically Enron and Trump Hotels and Casino, and it focuses on 2001 and 2003.

The Changes in Reported Pro Forma Earnings and GAAP
77% of firms reported pro forma earnings in 2001. The percentage of firms was seen to be declined to 54% in 2003. There are 85% of firms that have greater pro forma than GAAP earnings in 2001. In 2003, this ratio declined to 67%. The reduction in the two-year period is larger for firms that had income-increasing pro formas in 2001.
Most Frequently Reported Adjusting Items …show more content…
The Impact of SOX on Pro Forma Reporting
The new regulation Sarbanes-Oxley Act (SOX) requires firms to provide a reconciliation with earnings determined according to GAAP in addition to pro forma. As SOX warns firms to avoid disclosing pro forma that mislead, it results in a significant decrease in firms using pro
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