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Standard setters put much effort into the development of ‘better’ financial reporting standards, that is, standards that more accurately capture the economic substance of business activities. However, the more sophisticated accounting treatments caused by new standards, and the growing complexity of business activities as such, has made financial reports more difficult to understand. In response to this situation, some companies use pro forma reporting, which means that certain complex items required by financial reporting standards are excluded. This study adopts a user perspective and investigates how pro forma reporting affects analysts' judgments in an experimental setting. On the basis of psychological theory, our hypothesis suggests that analysts' judgments will be affected by differences in the way company performance is presented. Our results show that analysts who received both pro forma and Generally Accepted Accounting Principles (GAAP) information made significantly higher earnings pe...

Aims and MethodAn audit in a general hospital accident and emergency (A&E) department and the subsequent development of a triage process for people presenting with self-harm is described. A random sample of 103 people attending with self-harm were selected and their treatment audited against standards derived from NICE guidelines.ResultsThe service provided by the A&E department was sub-standard. Of particular concern was the lack of processes addressing risk assessment and safe discharge. A pro forma was designed with the aim of improving assessment of self-harm. A repeat audit 3 months after introduction of the pro forma showed an improvement in the recording of relevant information underpinning risk assessment.Clinical ImplicationsProcedures for those presenting to A&E departments with self-harm may not meet recommended guidelines. The use of a pro forma with staff training can improve risk assessment.

In recent years, many companies have emphasized adjusted-GAAP earnings numbers in their quarterly press releases. While managers use different names to describe these nonstandard earnings metrics, the financial press frequently refers to them as “pro forma” earnings. Managers and other advocates of pro forma reporting argue that these disclosures provide a clearer picture of companies' core earnings. On the other hand, regulators, policymakers, and the financial press often allege that managers' pro forma earnings disclosures are opportunistic attempts to mislead investors. Recent evidence suggests that while many pro forma earnings disclosures are altruistically motivated, some may represent managers' attempts to portray overly optimistic financial performance. If this is the case, then less wealthy, less sophisticated, individual investors are arguably the most at risk of being misled. Consequently, this study investigates who trades on pro forma earnings information. Our intraday investigation of transactions around earnings announcements containing pro forma earnings information reveals that less sophisticated investors' announcement-period abnormal trading is significantly positively associated with the magnitude and direction of the earnings surprise based on pro forma earnings. In contrast, we find no association between sophisticated investors' trading and manager-reported pro forma information. Overall, our analyses and numerous robustness tests suggest that the segment of the market that relies on pro forma earnings information is populated predominantly by less sophisticated individual investors. This evidence is particularly relevant to standard-setters and regulators given that Section 401(b) of the Sarbanes-Oxley Act of 2002 and subsequent SEC regulations are specifically designed to protect ordinary investors from misleading pro forma information.

Cohen, Hann, and Ogneva [(2007) Review of Accounting Studies, Forthcoming] provide evidence on how measurement error affects inferences this literature. In particular, they provide a theoretical framework for understanding (1) the source of differences in market reactions to GAAP and Street earnings and (2) why we observe a divergence over time between ERCs based on these two earnings metrics. Moreover, they present empirical evidence on practical solutions researchers can use to mitigate the effects of measurement error. I discuss the implications of their results and provide new empirical evidence to highlight how their results apply to future research. In particular, I use a large sample of manager-adjusted “pro forma” earnings numbers voluntarily disclosed in quarterly earnings press releases to provide additional evidence about the implications of their research. Descriptive statistics based on these data illustrate the degree of measurement error in different earnings metrics. The results suggest that additional research is needed to determine the extent to which a random walk earnings expectation and reverse regression can mitigate the effects of measurement error.

Rationale There was local concern over possible delays in the diagnosis and referral of patients with suspected colorectal cancer and interest in understanding more about patients’ experiences of diagnosis. Aims and objectives To use clinical audit, qualitative data from patients and feedback from general practitioners (GPs) to identify possible delays in referral, and to decrease these by implementing referral guidelines. Methods Audit of endoscopy referrals assessed how often these recorded rectal examination and whether patients were seen within 2 weeks. Qualitative interviews with 19 patients explored their experience of referral and diagnosis. Review of 33 case records assessed other possible delays. Results Most patients referred for endoscopy were seen within 2 weeks (67%, 119/177), but only 47% (71/151) of available referral letters mentioned rectal examination. Patients perceived most delay in secondary care and case records suggested that this occurred after non-urgent referral. Patients also identified some problems with communication, information and support about the diagnosis. We used the results to stimulate local acceptance of national referral guidelines and wider discussion about care. A consultation exercise with GPs informed the development of a faxable urgent referral pro forma and supporting educational meetings. We designed a database to monitor changes in waiting times and made plans to improve communication and support after diagnosis. Discussion Feeding back qualitative data from patients together with audit results seemed a powerful lever to stimulate action about hospital delays. Average waiting times dropped quickly and remained low due to the continuing national focus upon them. Seeking GP views may have promoted the use of referral pro formas, but monitoring waiting times distracted from a more thorough evaluation of their use. Qualitative data from patients raised awareness of their experience, but was time-consuming to collect and we had limited success in using it for specific initiatives around communication and support.

This study addresses three research questions relating to total exclusions, special items, and other exclusions. Are each of these pro forma exclusion components forecasting irrelevant? Are each of the exclusion components value irrelevant? Are the valuation multiples on the exclusion components justified by their ability to forecast future profitability as predicted by the Ohlson (1999) model? Findings are generally consistent with the market-inefficiency results presented in Doyle et al. (2003). Total exclusions are valued negatively by the market despite the prediction that total exclusions will be valued positively. Valuation results also suggest that stocks with positive other exclusions are overpriced.

Insights on how ordinary, less-sophisticated investors interpret and process management-issued pro forma earnings numbers are useful to regulators because of concerns that pro forma disclosures are misleading to ordinary investors. Two recent experimental studies [Frederickson, J. R., & Miller, J. S. (2004). The effects of pro forma earnings disclosures on analysts’ and nonprofessional investors’ equity valuation judgments. The Accounting Review, 79 (3), 667–686; Elliott, W. B. (2006). Are investors influenced by pro forma emphasis and reconciliations in earnings announcements? The Accounting Review, 81 (1), 113–133] find that the existence of a pro forma number in the earnings press release as well as the relative placement of the pro forma and GAAP earnings figures within the press release affect the judgments of less-sophisticated investors but not those of more-sophisticated investors. Experimental and archival methodologies complement one another and results that persist in both settings are likely to be robust to both internal and external validity concerns. Therefore, we complement experimental evidence using trade-size-based proxies constructed from intraday transactions data to distinguish the trading activities of less-sophisticated investors from more-sophisticated investors. Our results suggest that less-sophisticated investors rely significantly more on quarterly earnings press releases that include a pro forma number than on those that do not, while more-sophisticated investors exhibit the opposite behavior. This result is consistent with Frederickson and Miller’s experimental evidence. Further, consistent with Elliott’s results, we find that less-sophisticated investors rely more on the pro forma figure when it is placed before the GAAP earnings number in the press release, while more-sophisticated investors’ trading behavior is unaffected by the relative placement of the two earnings metrics. We conclude that the existence of a pro forma number as well as its strategic placement in the press release generally affect the judgments of less-sophisticated (but not more-sophisticated) investors and these inferences are robust because they persist in both experimental and archival settings.

Clinical handover has been identified as a "major preventable cause of harm" by the Royal College of Physicians (RCP). Whilst working at a London teaching hospital from August 2013, we noted substandard weekend handover of medical patients. The existing pro forma was filled incompletely by day doctors so it was difficult for weekend colleagues to identify unwell patients, with inherent safety implications. Furthermore, on-call medical staff noted that poor accessibility of vital information in patients' files was affecting acute clinical management. We audited the pro formas over a six week period (n=83) and the Friday ward round (WR) entries for medical inpatients over two weekends (n=84) against the RCP's handover guidance. The results showed poor documentation of several important details on the pro formas, for example, ceiling of care (4%) and past medical history (PMH) (23%). Problem lists were specified on 62% of the WR entries. We designed new handover pro formas and 'Friday WR sheets' to provide prompts for this information and used Medical Meetings and emails to explain the project's aims. Re-audit demonstrated significant improvement in all parameters; for instance, PMH increased to 52% on the pro formas. Only 10% of Friday WR entries used our sheet. However, when used, outcomes were much better, for example, problem list documentation increased to 100%. In conclusion, our interventions improved the provision of crucial information needed to prioritise and manage patients over the weekend. Future work should further highlight the importance of safe handover to all doctors to induce a shift in culture and optimise patient care.

Background Food dislikes in children may result in avoiding particular food/s with major sources of essential nutrients leading to increased risk of impaired growth or cognitive development and compromised immune function. It is necessary to identify conditions contributing to feeding difficulty and associated complications. An instrument was designed to assist diagnosis and management of children with feeding difficulties. The study was conducted to test utility of the “Identification and Management of Feeding Difficulties (IMFeD)” tool in Indian children. Methods A prospective, cross-sectional study was conducted in Indian children between 2 and 10 years identified to have picky eating behaviour. After completion of both pro forma sections (parent and physician) of the IMFeD tool, the child’s specific feeding difficulty was diagnosed and appropriate nutritional and/or behavioural counselling was provided. The subjects were followed at 30 and 60 days post-intervention. Results According to 66% of paediatricians the IMFeD tool was very easy to use. Approximately 85% of paediatricians required ≤20 min to administer the tool, diagnose the feeding difficulty(ies) and provide specific counselling or behavioural management. More than 70% of parents were satisfied and willing to accept the use of the IMFeD tool. After 60 days, 65% of the parents were either less worried or not worried at all about the feeding behaviour of the child using recommendations made on the basis of the IMFeD tool. The toolkit helped parents to know what to do if their child had a feeding problem. A total of 90% of the parents expressed that the tool is useful for assessing feeding difficulties in children. Conclusion The IMFeD tool can be effectively used to identify feeding difficulties in Indian children. This toolkit also helps to offer nutritional and behavioural guidance as a part of the management.

Model parameters that represent a photovoltaic (PV) system as built may not align with the original pro forma pa-rameters estimated and possibly guaranteed a priori in the pro-curement phase of a project. In this paper, the pro forma parame-ters of an existing system are revisited via on-site survey, indoor characterization, analytical modeling, and ex-post performance analysis. Moreover, the Photovoltaic System Analysis Toolbox (PVSAT) is introduced, validated, and used to execute a modern performance guarantee to investigate the impact of varying de-grees of model true-up on production forecasts. Improvements to the original parameter values are achieved, demonstrating how calibration efforts performed even over a brief data collection in-terval can provide valuable insights and mitigate risk.

Purpose – The purpose of this paper is to report on a part of a study examining the interrelationships between personalisation and safeguarding practice. Specifically the authors aimed to examine how safeguarding practice is affected by the roll out of personalisation in adult social care, particularly when the adult at risk has a personal budget or is considering this. Design/methodology/approach – A sample of annual reports from Adult Safeguarding Boards in England was accessed for content analysis covering the period 2009-2011. One part of this sample of local authorities was selected at random; the other authorities selected had been early adopters of personalisation. The reports were analysed using a pro forma to collect salient information on personalisation that was cross-referenced to identify common themes and differences. Findings – The authors found variable mentions of personalisation as part of the macro policy context reported in the annual reviews, some examples of system or process changes at mezzo level where opportunities to discuss the interface were emerging, and some small reports of training and case accounts relevant to personalisation. Overall these two policy priorities seemed to be more closely related than had been found in earlier research on the interface between adult safeguarding and personalisation. Research limitations/implications – There was wide variation in the annual reports in terms of detail, size and content, and reports for only one year were collected. Developments may have taken place but might not have been recorded in the annual reports so these should not be relied upon as complete accounts of organisational or practice developments. Practical implications – Authors of Safeguarding Adults Board reports may benefit from learning that their reports may be read both immediately and potentially in the future. They may wish to ensure their comments on current matters will be intelligible to possible future readers and researchers. Originality/value – There does not appear to have been any other previous study of Safeguarding Adult Boards’ annual reports. Documentary analysis at local level is under-developed in safeguarding studies.

Evaluating an industrial opportunity often means to engage in financial modeling which results in estimation of a large amount of economic and accounting data, which are then gathered in an economically rational framework: the pro forma financial statements. While the standard net present value (NPV) condenses all the available pieces of information into a single metric, we make full use of the crucial information supplied in the pro forma financial statements and give a more detailed account of how economic value is created. In particular, we construct a general model, allowing for varying interest rates, which decomposes the project into investment side and financing side and quantifies the value created by either side; an equity/debt decomposition is also accomplished, which enables to appreciate the role of debt in adding or subtracting value to equityholders. Further, the major role of accounting rates of return as value drivers is highlighted, and new relative measures of worth are introduced: the project ROA and the project WACC, which aggregate information deriving from the period rates of return. To achieve these results, we make use of the Average-Internal-Rate-of-Return (AIRR) approach, recently introduced, which rests on capital-weighted arithmetic means and sets a direct relation between holding period rates and NPV.

Students in higher education are increasingly asked to give feedback on their education experience, reflecting an increase in the importance attached to that feedback. Existing literature demonstrates that qualitative student feedback is valued and important, yet there has been limited evaluation of the means by which qualitative student feedback is collected, and how collection method influences the depth of feedback from students. We evaluated the depth of feedback written by students on programmes at three different universities in the United Kingdom, using an established evaluation instrument. We found that the use of a structured pro forma (Stop, Start, Continue) was associated with feedback of greater depth than that produced using free text entry. We then evaluated the effect of switching from a free text to a structured pro forma at one institution and found, again, that the structured pro forma was associated with feedback of greater depth. In addition, students indicated a preference for the structured pro forma.

Auctor de locutionibus ‘dicis gratia’ ac ‘dicis causa’ in iurisperitorum lingua significationem inuestigat. Haec uocabula forsitan propria iurisconsultorum ueteris sermonis sunt (arg. ex Varro de ling. Lat. 6.61). Non est inverisimile quod Gaius (in Gai 1.141, 1.190, 2.103-104, 2.252) illorum uerborum pristinum ualorem resonat. The A. investigates the meaning of the terms ‘dicis gratia’ and ‘dicis causa’ in the legal sources. Probably these expressions belong to the ancient Roman legal lexicon (arg. ex Varro de ling. Lat. 6.61). In the jurisprudential texts [Gai 1.141, 1.190, 2.103 and 104, 2.252, D. 13.6.4 (Gai. 1 de verb. obl.), 29.5.1.34 (Ulp. 50 ad ed.)] dicis gratia and dicis causa do not occur – according to the reconstruction of the A. – with unique semantic meaning (and, in particular, purely and simply in the sense of ‘pro forma’). In the Institutes of Gaius it is possible to trace an echo of their original legal value. Two glosses of the pseudo Philoxenos (corp. glos. Lat. 2.48.42 and 43) retain memory of the polysemy of such terms.

Banks of multiple-choice questions, and the taxonomies into which the questions are classified, e.g., by difficulty and question type such as application, accompany virtually all marketing textbooks. Only a few independent assessments of the questions and taxonomies have been published. (Dickinson 2005 and 2011; Dickinson, Faria, and Whiteley 1991 ). The present study examines the question bank accompanying a widely adopted retailing management text (Levy and Weitz [LW] 2009). Assessment of this particular test item bank, of course, should be of interest to adopters of the text. Also, though, the assessment may provide encouragement of and a pro forma for similar assessments of other question banks and a contribution toward establishing norms for such banks.

This paper examines the effect of two Securities and Exchange Commission regulatory interventions related to disclosure of non-GAAP financial measures. There are three main results. First, the probability of disclosure of non-GAAP earnings declines in 2003, but the probability of disclosure of other non-GAAP financial measures has an accelerated decline after the first intervention. Second, all else equal, after Regulation G, investors have a positive market reaction to the disclosure of non-GAAP earnings. Finally, investors react to the adjustments made by I/B/E/S financial analysts as they do to the GAAP surprise, but they do not react to the additional adjustments made by firms.

The Sarbanes–Oxley (SOX) Act was passed in 2002 in response to various instances of corporate malfeasance. The Act, designed to protect investors, led to wide-ranging regulation over various actions of managers, auditors and investment analysts. Part of SOX, and the focus of this study, targeted the disclosure by firms of “pro forma” earnings, an alternate (from GAAP earnings), flexible and unaudited measure of firm performance. Specifically, SOX directed the Securities and Exchange Commission (SEC) to craft regulation which would reduce – and preferably eliminate – any pro forma earnings disclosure which might be “misleading”. Examining earnings press releases over a 3-year period, this study addresses three questions. Were firms disclosing pro forma in a potentially misleading manner, what was the nature of this potentially misleading disclosure, and did SOX affect the disclosure practices? We find the following. In 2001 (prior to SOX), 53 firms – over 10% of all U.S. S&P 500 firms – were disclosing pro forma earnings in a potentially misleading manner. This was being done most commonly by using traditional GAAP terminology (e.g., “net income”) in the press release headline to describe what was later in the press release revealed to be a pro forma amount (i.e., “net income excluding special items”). By 2003 (subsequent to the SEC regulation), potentially misleading disclosure practices were seen in less than 1% of the earnings press releases of S&P 500 firms. This significant reduction suggests that managers, prior to the regulation, were either careless in their pro forma reporting practice, or were intentionally – and unethically – attempting to mislead investors. Either way, we conclude that the SEC regulation was both necessary and effective.

This paper examines the classification of items within the income statement as an earnings management tool. Evidence is consistent with managers opportunistically shifting expenses from core expenses (cost of goods sold and selling, general, and administrative expenses) to special items. This vertical movement of expenses does not change bottom-line earnings, but overstates “core” earnings. In addition, it appears that managers use this earnings management tool to meet the analyst forecast earnings benchmark, as special items tend to be excluded from both pro forma and analyst earnings definitions.

A primary objective of the Sarbanes-Oxley Act is to bolster public confidence in the U.S. capital markets. The SEC aims to achieve this objective in part by regulating the use of alternate earnings measures (colloquially referred to as “pro forma” earnings) that differ from generally accepted accounting principles. This paper examines whether firms change their reporting practice in response to pro forma regulation. Specifically, it examines whether the use, calculation, and presentation of pro forma measures by S&P 500 companies changes between 2001 and 2003. We document three significant shifts in pro forma reporting in this period. First, the proportion of firms reporting pro forma earnings declines from 77 to 54 percent. Second, by 2003, pro forma is used in a less biased manner. Not only is the proportion of firms using pro forma earnings to increase reported income smaller than in 2001, but also the magnitudes of these increases are reduced. Third, in 2003, firms present pro formas in press releases in a much less prominent and less potentially misleading manner. These results suggest a strong impact of the recent regulation of pro forma reporting and provide important empirical evidence for policy makers.

This paper uses stock market data to investigate the popular claim that investors are misled by the “pro forma” earnings numbers conspicuously featured in the press releases of some U.S. firms. We first document the frequency and magnitude of pro forma earnings in press releases issued during June through August 2000, and describe the 433 firms that engaged in this financial disclosure strategy. Our test period predates public expressions of concern by trade associations and regulators that pro forma earnings may mislead investors and the subsequent issuance of guidelines and rules on the disclosure of pro forma earnings numbers. We use two complementary approaches to determine whether the share prices that investors assign to pro forma firms are systematically higher than the prices assigned to other firms. Our market-multiples tests for differences in price levels find some evidence suggesting that pro forma firms may be priced higher than firms that do not use the disclosure strategy. This apparent overpricing is not, however, related to the pro forma earnings numbers themselves. Our narrow-window stock returns tests reveal no evidence of a stock return premium for pro forma firms at the quarterly earnings announcement date. Collectively, the results cast doubt on the notion that investors are, on average, misled by pro forma earnings disclosures despite the widespread concern expressed in the financial press and by regulators.

This paper provides an equilibrium analysis of a setting in which a manager is required to disclose GAAP earnings, but has discretion over the provision of information about earnings components that are disaggregated according to their persistence or value relevance. We find that the manager is more likely to disclose disaggregated earnings information when GAAP earnings fall. We derive intuitive comparative static results concerning the impacts of firm characteristics on the manager's equilibrium disclosure choice. We also discuss how the paper's main results are linked to empirical findings on pro forma earnings disclosures.

Objective. To implement and evaluate formal assessment of the performance of West Midlands rheumatology specialist registrars (SpRs) in conducting out-patient consultations. Methods. SpRs conducted a full out-patient clinic while being observed by one or two consultants who scored each SpR's performance on a structured pro forma. The assessment was conducted within the examining consultant's hospital trust (in which the SpR was not working). The process was evaluated by trainees and trainers by means of a questionnaire. Results. Sixteen SpRs were assessed. No trainee failed to reach the required standard. Six trainees scored 'borderline' for management planning and four had a borderline performance recorded for examination skills. Overall the process was valued by trainers and trainees, although consensus was that it would be more practicable for the trainee to be examined within the hospital in which they were working by a visiting consultant examiner. It was also felt that a broader range of scoring options would be preferable. Conclusion. Formal assessment, by direct observation, of the skills of SpRs in conducting an out-patient clinic is practicable and offers information which is useful to trainer and trainee. A culture of direct observation of performance can be achieved within the context of rheumatology higher medical training.

SFAS 143, Accounting for Asset Retirement Obligations, has the potential to cause significant economic consequences to firms impacted by its provisions. BKL Khurana, I. K.; Loudder, M. L. “The Economic Implications of Proposed Changes in the Accounting for Nuclear Decommissioning Costs,” Accounting Horizons, 14 (2), June 2000, pp. 211–233) suggests that companies would be required to record materially increased assets, liabilities, and expenses which may subsequently cause a significant impact to commonly used financial ratios. BK&L developed predictions of the pro forma effect on assets, liabilities, and expenses due to SFAS 143 adoption by nuclear power utilities. This study examines the actual financial statement effect on BK&L's sample firms due to the adoption of SFAS 143. Results indicate that concern voiced over the standard's requirement to capitalize asset retirement obligations and the related asset, and to record additional expenses by nuclear power companies may have been unfounded.

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.

One of the most controversial accounting issues pertains to stock compensation. In Canada, the Canadian Institute of Chartered Accountants (CICA) approved section 3870, Stock-based Compensation and Other Stock-Based Payments, on November 13, 2001, to take effect in January 2002. Section 3870 forces companies to “take a look at the real economic cost of most of the stock-based compensation mechanisms” (AcSB Bulletin, October 2001, 1). The adoption of section 3870 was aimed at harmonizing Canadian accounting practice with U.S. standards. The new standard, which was initially based on two American accounting standards - APB Opinion No. 25 and SFAS No. 123 - gave companies the choice of using either the fair value method or the pro forma disclosure of net income and adjusted earnings per share to account for stock-based compensation. The Accounting Standards Board (AcSB) nevertheless recommended that Canadian companies use the fair value method, which consists in estimating and recognizing the value of the stock options at the grant date.

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.

This study compares managers' voluntary disclosure of pro forma earnings—an alternative measure to generally accepted accounting principals (GAAP) earnings—in the U.S. and Canada. The results indicate some distinct differences between the two countries in that U.S. managers (1) disclose pro forma earnings more frequently, (2) place greater emphasis on the pro forma earnings number relative to the GAAP earnings figure, and (3) make greater (income-increasing) adjustments from GAAP in calculating pro forma earnings than do their Canadian counterparts. While we find distinct differences in the use of pro forma between the U.S. and Canada, we do not find evidence that it is used for different purposes. Our evidence suggests that in both countries pro forma earnings is used by some corporations to affect users' perceptions of firm performance. Overall, given the differences in managers' use of pro forma, a form of voluntary disclosure, our results suggest caution in moving to a uniform (cross-border) system of financial regulation.

This paper traces the ways in which the language of reconciliation promotes and detracts from responsibility. What it means to be responsible and to take responsibility is explored through a reading of J. M. Coetzee's novel, Disgrace. Coetzee provokes a nuanced examination of the nature of reconciliation and responsibility in post-apartheid South Africa, particularly how deep a moral transformation is needed and of whom it should be expected. The tensions between pro forma acknowledgement and deep moral transformation are examined with respect to the competing narratives of reconciliation and responsibility that took place during the Truth and Reconciliation Commission and afterwards in South African civil society. The paper concludes with a warning about the delicate balance between responsibility and vilification, reconciliation and denial.

This paper provides evidence on the characteristics of firms that include “pro forma” earnings information in their press releases, whether the usefulness of pro forma earnings to investors varies systematically with these characteristics, and whether the investor response to pro forma earnings is consistent with market efficiency or mispricing. Using a sample of 249 press releases from 1997–99, we find that firms with low GAAP earnings informativeness are more likely to disclose pro forma earnings than other firms. We also find that strategic considerations, measured using the direction of GAAP earnings surprises, are an important determinant of pro forma reporting. In addition, our examination of the relative and incremental information content of pro forma earnings shows that investors find pro forma earnings to be more useful when GAAP earnings informativeness is low or when strategic considerations are absent. Tests of the predictive ability of pro forma earnings for future profitability and returns are mixed, and we therefore cannot conclusively determine whether the investor reaction to pro forma earnings at the time of the press release is consistent with market efficiency or mispricing. The paper contributes to the growing literature on pro forma earnings and more generally to the literature on voluntary and strategic disclosure.

This paper presents an experiment that examines the effect of pro forma earnings disclosures on the judgments of analysts (i.e., more sophisticated investors) and nonprofessional (i.e., less sophisticated) investors. In the experiment, participants developed stock price assessments after reviewing background financial information and a current earnings announcement for a company. The earnings announcement was manipulated to report only GAAP earnings in one condition and both pro forma and GAAP earnings in the other condition. Consistent with empirical evidence, the pro forma earnings in our experiment exceeded GAAP earnings. The results indicate that nonprofessional investors who received an earnings announcement that contained both pro forma and GAAP disclosures assessed a higher stock price than did nonprofessionals who received an announcement containing only GAAP disclosures. Financial analysts' stock price judgments were not affected by the pro forma disclosures. Followup analyses suggest that analysts and nonprofessional investors used different valuation models and information processing. Analysts used well-defined valuation models, based on either earnings-multiples or cash flows, while the nonprofessional investors were more likely to use simpler, heuristic-based valuation models. The pro forma disclosure did not cause nonprofessional investors to assess a higher earnings number for determining a stock price, but rather caused nonprofessionals to perceive the earnings announcement as more favorable, which in turn caused them to convert earnings or some other performance metric into a higher stock price. This effect appears to be due to unintentional cognitive effects, rather than nonprofessionals relying on pro forma earnings information because they perceived it to be informative.

This study provides descriptive evidence on the controversial trend adopted by many firms in recent years of reporting earnings figures on a pro forma basis. pro forma earnings exclude normal income statement items that managers deem to be nonrecurring or nonrepresentative of ongoing operations. We examine a large sample of actual pro forma press releases issued between January 1998 and December 2000. We find that pro forma announcers tend to be relatively “young” firms that are concentrated primarily in the tech sector and business services industries, and that they are significantly less profitable, more liquid, and have higher debt levels, P-E ratios, and book-to-market ratios than other firms in their own industries. Our results indicate that while firms commonly exclude multiple expenses in arriving at their pro forma earnings figure, they usually do not exclude the same items in subsequent pro forma announcements. These results support the criticism that pro forma announcements are often motivated by managers' desires to meet or beat analysts' expectations or to avoid earnings decreases.

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.

This paper seeks to determine whether Danish managers exercise discretionary accruals to reach earnings forecast targets they voluntarily specify in conjunction with initial public offerings (IPOs). Because the Danish accounting and legal environment is more permissive than the US, we use Denmark as a natural laboratory for learning how business would occur without strict rules, enforcement and sanctions. Danish managers often volunteer pro forma financial statements for results that are expected to occur subsequent to the IPO. We examine a sample of 58 Danish firms that issue voluntary management earnings forecasts in connection with IPOs that occur between 1984 and 1996. The evidence we uncover strongly suggests that pre-managed earnings are adjusted toward these targets. In contrast with Kasznik's (1999 Kasznik, R. (1999). On the association between voluntary disclosure and earnings management. Journal of Accounting Research, 37: pp. 57–81) results related to voluntarily forecasting American firms, managers of Danish firms exercise discretionary accruals to mitigate earnings forecast errors regardless of whether pre-managed earnings are less, or greater, than the IPO forecast amount.

The IFRS 2, Share-based Payment, requires that companies recognize the fair value of employee stock options as an expense. To ascertain the impact recognition will have on companies domiciled in countries subject to accounting standards issued by the IASB’s liaison standard setting partners, this research examines the pro forma stock option disclosures provided in Form 20-F by Australian, British, Canadian, French, German, Japanese, and Irish companies. The findings indicate the average impact of expense recognition on diluted EPS will be approximately 40% and will be material at a 5% level for the majority of the companies. The impact varies significantly by country. On average the annual expense recognized will be approximately 15% of beginning stockholders equity. For the majority of the companies, the charge will represent less than 1% of beginning equity. Again the impact varies significantly by country. The findings indicate that absent requirements that stock compensation expense be recognized, a material upward bias will be reflected in performance indicators of many non-U.S. companies and cross-border comparability will be impaired. Since our analysis is based solely on data for the year 2000 for companies domiciled in seven countries, future research will be needed to ascertain the impact of expense recognition on a broader range of companies reporting under IFRS 2.

Objectives To investigate the quality of information in referrals for patients aged under 16 years referred for dental extraction under general anaesthesia (GA), to ascertain the knowledge and expectations of the parents of these patients, and to determine whether the number of teeth extracted in secondary care coincides with that of the referring dentist. Design Retrospective study of referrals of all patients aged under 16 years referred to community dental clinics in Berkshire, Buckinghamshire, Northamptonshire and Oxfordshire over a 26-day period. Results The majority (62.2%) of the 251 referrals examined were for extractions under GA. Of these, 125 were by letter and 117 using a pro forma. Significantly more pro formas (33) than letters (8) contained a full medical history (PConclusions Our findings indicate a need for parents of patients referred for GA procedures to be better informed about alternatives. Improvement in the quality of referrals, perhaps with the aid of standard pro formas, would also facilitate more effective management of referred patients.

This study investigates whether market participants perceive pro forma earnings to be more informative and more persistent than GAAP operating income by analyzing a sample of 1,149 actual pro forma press releases. We find that pro forma announcers report frequent GAAP losses and are mostly concentrated in the service and high-tech industries. Our analyses of short-window abnormal returns and revisions in analysts’ one-quarter-ahead earnings forecasts indicate that pro forma earnings are more informative and more permanent than GAAP operating earnings. Our evidence suggests that market participants believe pro forma earnings are more representative of “core earnings” than GAAP operating income.

This paper models firms’ choices between alternative means of presenting information, and the effects of different presentations on market prices when investors have limited attention and processing power. In a market equilibrium with partially attentive investors, we examine the effects of alternative: levels of discretion in pro forma earnings disclosure, methods of accounting for employee option compensation, and degrees of aggregation in reporting. We derive empirical implications relating pro forma adjustments, option compensation, the growth, persistence, and informativeness of earnings, short-run managerial incentives, and other firm characteristics to stock price reactions, misvaluation, long-run abnormal returns, and corporate decisions.

By analyzing a carefully constructed earnings announcements sample that discloses a ‘pro forma’ earnings number, Bhattacharya et al. (J. Account. Econom. 36 (1–3) (2003)) contribute to recent research documenting increasing differences between earnings as defined by generally accepted accounting principles (GAAP) 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.

Aim of the Paper: To offer colleagues a method of monitoring the process of implementing an integrated care pathway (ICP) on a local level or, across a wide area. Background: A training pack was developed to assist with the Wales-wide implementation of an ICP for the last two days of life. The training pack includes a workbook, which is structured around seven stages recognised as being essential to the effective implementation of the pathway. The workbook is formatted in the same way as the pathway and as such is complete with a variance sheet. The variance sheet is utilised to record instances when a desired goal is not achieved and the reason why. The workbook represents a ‘Pathway for Implementing a Pathway’, which can be used to monitor the progress of implementation and highlight inhibiting and facilitating factors. Methods: The Wales-wide implementation of the ICP for the last two days of life, utilised the workbook as a pro forma for assessing the progress of implementation. Analysis of the variance sheets from the workbooks permitted the identification of inhibiting and facilitating factors contributing to the successful implementation of the pathway on a local and national level. Findings: Inhibiting factors affecting the implementation of an ICP include: local politics, fear of failure and lack of motivation. Facilitating factors range from, ‘top-down approval’ or gaining management commitment for the pathway, to ‘bottom-up motivation’, which entails enthusing colleagues as to the benefits of implementing the care pathway. Conclusions: The ‘Pathway for Implementing a Pathway’ is a useful tool for implementing an ICP. Although primarily developed to accompany the implementation of an integrated care pathway for the last two days of life, it would be interesting to assess the transferability of the implementation pathway to other clinical areas.

Under Canadian generally accepted accounting principles (GAAP), firms are required to proportionally consolidate joint venture investments, as opposed to the United States where the equity method is used. Using a sample of Canadian firms, this study investigates the relative information content of equity method and proportionally consolidated financial statement amounts for explaining market risk. This is possible for Canadian firms where detailed footnote disclosures permit the calculation of pro forma equity method amounts. The findings are surprising in that whereas proportionally consolidated financial statements are more risk relevant than equity method statements for explaining price volatility, equity method statements are more risk relevant than proportionally consolidated ones for explaining bond ratings. The findings suggest that different market participants use financial statement information differently. The study also finds that failure to disclose disaggregated joint venture accounting amounts, as is the case under US GAAP, masks information that could help market participants assess risk.

From a valuation perspective, no “best”—or even consistent—measure of pro forma earnings exists.

While concentration measures are a good indicator of market structure, the link with competitiveness is more complex than often assumed. In particular, the modern theory of industrial organisation makes no clear statement regarding the impact of concentration on competition ‐ the focus of this paper is concentration and no inferences are made about competitive aspects of the market. The extent and nature of concentration within the UK listed company audit market as at April, 2002 and, pro forma, after the collapse of Andersen is documented and analysed in detail (by firm, market segment and industry sector). The largest four firms held 90 per cent of the market (based on audit fees) in 2002, rising to 96 per cent with the demise of Andersen. A single firm, Pricewaterhouse‐Coopers, held 70 per cent or more of the share of six out of 38 industry sectors, with a share of 50 per cent up to 70 per cent in a further seven sectors. The provision of non‐audit services (NAS) by incumbent auditors is also considered. As at April 2002, the average ratio of non‐audit fees (paid to auditor) to audit fees was 208 per cent, and exceeded 300 per cent in seven sectors. It is likely, however, that disposals by firms of their management consultancy and outsource firms, combined with the impact of the Smith Report on audit committees will serve to reduce these ratios. Another finding is that audit firms with expertise in a particular sector appeared to earn significantly higher nonaudit fees from their audit clients in that sector. The paper thus provides a solid empirical basis for debate. The subsequent discussion considers the implications for companies and audit firms of the high level of concentration in the current regulatory climate, where no direct regulatory intervention is planned.

This case is designed to provide you with the opportunity to examine several reporting issues, in the period between an IPO and bankruptcy filing, for a “dotcom” company that failed. You will consider the information provided to outside users of financial statements in several company reporting mechanisms including the financial disclosures made by the company in its 10-Q and 10-K filings to the SEC, the pro forma earnings reported in press releases, and the information available to the public to evaluate a going concern assumption. Further, you will also examine the impact of analysts' forecasts on management's release of financial information to the public.

In this paper I discuss “at-a-glance” properties of textual materials in a series of work environments, including hospitals, libraries and ticket offices. I describe how members visually orient to mundane textual materials (“pro formas”) as constituents of courses of action. From the analysis of texts-in-action, I suggest that the organization of administrative texts, including blood-test requests and missing-item reports, is amenable to formal descriptions (“apostolic function”, “career”); and situated descriptions (sequencing of activities and use of membership categories). Information is rendered visually available through (a) the spatial arrangements of textual artefacts in social settings; (b) the spatial arrangements or layout of specific documents. These “visibility arrangements” of textual materials are reflexively related to the recognition and retrieval of particular documents.

We investigate whether footnote disclosures under Statement of Financial Accounting Standards (SFAS) No. 123 are managed in 1996, the first year that the disclosure was required. The 1996 phase-in of SFAS No. 123 provided firms with a unique opportunity to manipulate the pro forma disclosure in the initial years. SFAS No. 123 allows firms discretion in estimating the value of their stock option grants and in allocating that value across accounting periods. Although we find little evidence that firms manage the estimated value of their option grants, we find that firm-specific incentives affect how that value is allocated. Specifically, firms that provide high levels of either CEO compensation or stock option compensation relative to performance allocate a smaller proportion of the options' value to the 1996 pro forma expense, apparently to reduce criticism of that compensation. Small firms and firms that recently went public also allocate a smaller proportion of option value to the 1996 pro forma expense, apparently to increase perceptions of their profitability. We conjecture that firms were less likely to manage the value of the options granted than the allocation of that value in 1996 because the parameter estimates underlying the reported option value must be disclosed in the footnote, whereas the inputs to the allocation computation are not disclosed. These results, which suggest that firms manipulated pro forma stock option expense when their estimate choices cannot be observed, have implications for both standard setters and financial statement users. In particular, the FASB's current deliberations on the transition from footnote disclosure to income statement recognition for stock options should consider additional disclosures to minimize unobservable choices. More generally, the FASB may reduce potential manipulation by requiring expanded disclosures about the choices used in computing both pro forma and reported numbers.