Question

List the reasons for preparing pro forma financial statements from GAAP financial statements. What are typical adjustments made to GAAP statements when preparing pro forma statements used in forecasting?

Answer 1

Pro forma financial information shall be furnished when any of the following conditions exist:

(1) During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Regulation S-X Rule 3-01, a significant business combination has occurred (for purposes of these rules, this encompasses the acquisition of an interest in a business accounted for by the equity method)

(2) After the date of the most recent balance sheet filed pursuant to S-X Rule 3-01, consummation of a significant business combination or a combination of entities under common control has occurred or is probable.

(3) Securities being registered by the registrant are to be offered to the security holders of a significant business to be acquired or the proceeds from the offered securities will be applied directly or indirectly to the purchase of a specific significant business.

(4) The disposition of a significant portion of a business either by sale, abandonment or distribution to shareholders by means of a spin-off, split-up or split-off has occurred or is probable and such disposition is not fully reflected in the financial statements of the registrant included in the filing.

(5) During the most recent fiscal year or subsequent interim period for which a balance sheet is required by S-X Rule 3-01, the registrant has acquired one or more real estate operations or properties which in the aggregate are significant, or since the date of the most recent balance sheet filed pursuant to that section the registrant has acquired or proposes to acquire one or more operations or properties which in the aggregate are significant.

(6) Pro forma financial information required by Regulation S-K Item 914 is required to be provided in connection with a roll-up transaction as defined in Regulation S-K Item 901(c).

(7) The registrant previously was a part of another entity and such presentation is necessary to reflect operations and financial position of the registrant as an autonomous entity.

pro forma adjustments :

Income tax effects

Costs of being a public company

Intangible assets Pro forma adjustments should be made to reflect the estimated fair value of identified intangible assets acquired based on the estimated purchase price allocation.