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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (5207)	12/5/2001 12:21:35 AM
From: John Pitera	Read Replies (1) \| Respond to of 33421

SEC Issues Warning On Improper Use Of Pro-Forma Reports December 4, 2001 By Judith Burns Of DOW JONES NEWSWIRES WASHINGTON -- The Securities and Exchange Commission cautioned companies Tuesday on the growing use of "pro-forma" financial results, saying in some cases it may mislead or deceive investors. Unofficial, "pro-forma" results which aren't prepared in accordance with generally accepted accounting principles "can be quite useful to investors," the SEC said in a notice to public companies. "Nevertheless, we are concerned that pro forma financial information, under certain circumstances, can mislead investors if it obscures GAAP," the SEC said. In a blunt warning to companies that issue pro-forma results, the SEC said the companies need to be "particularly mindful" not to mislead investors by selectively editing financial results. Companies that release earnings on a pro-forma basis need to disclose how the results are calculated, the SEC added. For instance, it said when a company announces earnings excluding unusual or non-recurring items it should describe the kind of items being omitted. It also called for firms to use the same method of calculations when comparing results for different time periods. Results, even if they are accurate, can be misleading if they omit key information, the SEC said. "For example, investors are likely to be deceived if a company uses a 'pro forma' presentation to recast a loss as if it were a profit," or obscures material portions of its official financial results, the agency said. The SEC encouraged companies to follow guidelines developed by the Financial Executives International and the National Investor Relations Institute to determine whether to use and how to issue pro-forma results. Companies won't get into trouble by issuing pro-forma results that deviate from GAAP provided they tell investors "in plain English" and explain the amount of deviation involved, according to the SEC. As for investors, the SEC said they should compare any summary or pro-forma results with the company's GAAP-based financial report for the quarter or year. While pro forma information isn't illegal, the SEC said it should be viewed with "healthy skepticism." "Read before you invest; understand before you commit," the SEC cautioned. The alerts are posted on the SEC's web site at www.sec.gov. -By Judith Burns, Dow Jones Newswires; 202-862-6692; judith.burns@dowjones.com