SEC Weighs the Benefits of Pro Forma Earnings

November 8, 2001 ( - Robert Herdman, the Securities and Exchange Commission (SEC)'s chief accountant, said pro forma earnings can be a valuable tool in assessing a company's financial standing when employed properly.

The SEC noted that it would be issuing an “Investor Alert” that describes how pro forma financials should be analyzed, and would include a reminder that they should be viewed with appropriate skepticism.

“Because “pro forma” financial information by its very nature departs from traditional accounting conventions, its use can make it hard for investors to compare an issuer’s financial information with other reporting periods and with other companies,” the notice reads.

The SEC encouraged companies to follow guidelines developed by the Financial Executives International and the National Investor Relations Institute to decide when and how to issue pro forma results.


The Investor Alert and Cautionary Advice can be accessed on