Asked by Maria Mendoza on May 08, 2024
Verified
Investors and analysts are sometimes urged to ignore traditional GAAP numbers and instead focus on nonstandard "pro forma" numbers because
A) the political compromises made to achieve consensus when issuing FASB pronouncements lead to inaccurate portrayals of underlying events.
B) management believes the pro forma numbers portray the company in a better light.
C) the pro forma numbers are closer to those reported under international reporting standards.
D) pro forma numbers are easier to understanD.
Pro Forma Numbers
Financial data that projections or estimates are based on, often used to show potential financial performance.
FASB Pronouncements
Official statements and standards issued by the Financial Accounting Standards Board (FASB) that dictate accounting methods and financial reporting practices.
- Acknowledge the incentives for and repercussions of altering financial statements.
Verified Answer
KM
Katie MyersMay 12, 2024
Final Answer :
B
Explanation :
Management may use pro forma numbers to portray the company in a more positive light by excluding one-time expenses or other items that may impact GAAP numbers negatively. Therefore, investors and analysts are sometimes urged to focus on nonstandard pro forma numbers, even though they may not fully comply with GAAP.
Learning Objectives
- Acknowledge the incentives for and repercussions of altering financial statements.
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