The Proforma Earnings

2. The authors have cited numerous sources that favor the Pro-forma earnings through which they have developed their hypothesis. For instance, Bradshaw and Sloan (2002) and Brown and Sivakumar (2001) were already for the proforma earnings than the accepted accounting principles as they believed that pro forma earnings reflect the actual earnings per share. But the author of the article denies their procedures and claims by stating that the response of the stock market can be a good way to respond to the earnings announcement and can be considered a significant way to determine the relevancy of the information market is utilizing, but it does not consider the fact that the market can be misled by the utilization of the proforma earnings, and this is the only debatable issue that the financial press and regulators have expressed. The researcher has favored his viewpoint by exploring that it is not clear as to why the capability to predict itself can be found to be a desirable characteristic of the performance measure. They have also differentiated the Pro-forma earnings and GAAP where they indicate that the earnings within the GAAP rule entails as to how much money an organization made, but they criticize the fact that pro forma earnings would just indicate as to how much money any organization has made from its ordinary or usual activities of the business. They further give an example of AT&T, which in the 4th quarter of 2001 had a pro forma earnings of 0.05 and their GAAP earnings were 0.39 which meant that the total exclusions were 0.44. These exclusions included losses on the sale of businesses, asset impairments and other losses on the equity method investments. They defend the usage of GAAP by claiming that it corresponds with Financial Accounting Standards Board’s conceptual framework when there is an involvement of the decision usefulness which will allow the certainty of the decision making and uncertainty of the future cash flows.

3. The researchers had opted for the selected companies within the selected period because in the 4th quarter of 1999 earnings announcement press release for the 50 randomly selected firms, the 48 cases had the Institutional Brokers’ Estimate System true earnings per share was featured predominantly within the PR. While, for the remaining two of the case, the GAAP EPS was reported and that the exclusions that were required for reconciling to the Institutional Brokers’ Estimate System actual EPS were demonstrated in the lead paragraph of the press release.

4. According to me, the results seem to be quite reliable because they have clearly stated that if the accounting principle as per GAAP is implemented, then there would be a provision of the decision usefulness of it. This would mean the businesses would maintain persistency within the presentation of the financial data which would further facilitate the risk of any fraud or misrepresentation. It is the only GAAP framework it should be there for safeguarding the rights of stakeholders that would incorporate investors too. Their claim proves that fact that GAAP would hold the company to get to be responsible for their activities within the financial reporting while making a provision of a significant assurance for all of the parties interested. With the utilization of GAAP, the companies can make a provision for a fair and true presentation of the financial information. Holding fast to the guidelines of GAAP can help one to actualize legitimate safeguards and controls. The way that the GAAP rules recommend utilizing a persistent premise that the professionals can apply to accounting transactions makes an illustration of the fact. Consistency prompts an all the more fair representation and aides in looking at financial statements over numerous periods. This helps one to make a determination of the overall performance of the company, make an identification of the areas that require improvement while judging the advantage of the changes being implemented.

5. By the financial reporting, one significant implication could be that the financial reporting is found to be a language which corresponds the information about the operational results and financial condition of the company. GAAP earnings would make a provision of information that would be quite useful and imperative for the lenders, investors who would potentially give resources to any particular organization and this indicates that GAAP is based on the established objectives, standards, concepts and conventions that seem to be evolved time by time to guide as to how the financial statements are prepared and then presented. It gives us a true explanation as to what items are recognization within the financial statements of revenue, assets, expenses, and liabilities. It also gives us a significant information as to the reporting of the amounts for all of the elements incorporated into the financial statements. Furthermore, it also provides us with a core and imperative information that is found to be quite favorable to the users of the financial statements and that the Disclosures explain and supplement the amounts within the statements. Therefore, GAAP is the definite guideline on which the companies or organizations can depend on while preparing the financial statements.