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Pro forma
 
 
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The term pro forma (Latin
Latin

Latin is an Italic language, historically spoken in Latium and Ancient Rome. Through the Military history of the Roman Empire, Latin spread throughout the Mediterranean and a large part of Europe....
 "as a matter of form") is a term applied to practices that are perfunctory, or seek to satisfy the minimum requirements or to conform to a convention
Convention (norm)

A convention is a set of agreement, stipulated or generally accepted standards, norm , norm or criterion, often taking the form of a Custom ....
 or doctrine
Doctrine

Doctrine is a codification of beliefs or "a body of teachers" or "instructions", taught principles or positions, as the body of teachings in a branch of knowledge or belief system....
. It has different meanings in different fields.

Accounting
In accounting, pro forma earnings
Income

Income, refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received......
 are those earnings of companies
Company

Generally, a company is a form of business organization. The precise definition varies.In the United States, a company is a corporation—or, less commonly, an association, partnership, or union—that carries on an industrial enterprise." Generally, a company may be a "corporation, partnership, association, joint-stock company, Inv...
 in addition to actual earnings calculated under the Generally Accepted Accounting Principles
Generally Accepted Accounting Principles

Generally Accepted Accounting Principles is the term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction....
 (GAAP) in their quarterly and yearly financial reports.

The pro forma accounting is a statement of the company's financial activities while excluding "unusual and nonrecurring transactions
Expense

In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs....
" when stating how much money the company actually made.






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Encyclopedia


The term pro forma (Latin
Latin

Latin is an Italic language, historically spoken in Latium and Ancient Rome. Through the Military history of the Roman Empire, Latin spread throughout the Mediterranean and a large part of Europe....
 "as a matter of form") is a term applied to practices that are perfunctory, or seek to satisfy the minimum requirements or to conform to a convention
Convention (norm)

A convention is a set of agreement, stipulated or generally accepted standards, norm , norm or criterion, often taking the form of a Custom ....
 or doctrine
Doctrine

Doctrine is a codification of beliefs or "a body of teachers" or "instructions", taught principles or positions, as the body of teachings in a branch of knowledge or belief system....
. It has different meanings in different fields.

Accounting


In accounting, pro forma earnings
Income

Income, refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received......
 are those earnings of companies
Company

Generally, a company is a form of business organization. The precise definition varies.In the United States, a company is a corporation—or, less commonly, an association, partnership, or union—that carries on an industrial enterprise." Generally, a company may be a "corporation, partnership, association, joint-stock company, Inv...
 in addition to actual earnings calculated under the Generally Accepted Accounting Principles
Generally Accepted Accounting Principles

Generally Accepted Accounting Principles is the term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction....
 (GAAP) in their quarterly and yearly financial reports.

The pro forma accounting is a statement of the company's financial activities while excluding "unusual and nonrecurring transactions
Expense

In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs....
" when stating how much money the company actually made. Expenses often excluded from pro forma results include company restructuring
Restructuring

Restructuring is the corporate management term for the act of partially dismantling or otherwise reorganizing a company for the purpose of making it more profitable....
 costs, a decline in the value of the company's investments, or other accounting charges, such as adjusting the current balance sheet
Balance sheet

In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year....
 to fix faulty accounting practices in previous years.

Companies that report a pro forma income statement or balance sheet usually do so because the events being excluded were unusual so the GAAP financial reports required by law are misleading to investor
Investor

An investor is any party that makes an investment.The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase stock or Bond Security for financial gain in exchange for funding an expanding company....
s and potential investors. The crisis that happened this last quarter is not going to recur in future quarters, so the pro forma results can be used by investors to forecast what a "regular" quarter might portend in the future.

Critics note that pro forma numbers typically look more profitable than GAAP numbers, and state that many companies intentionally use pro forma results in order to mislead investors into believing the company is in much better financial shape than it is; that there is no defined meaning or accounting standard for "pro forma" and that it is therefore impossible to make an "apples to apples
Apples and oranges

"Apples and oranges" refers to the idiom "comparing apples and oranges" or "apples to oranges", which is used to indicate that two items or groups of items have not been validly compared....
" comparison between companies with pro forma results in the way that GAAP accounting allows; and that most "unusual events" reported as such are part of the ordinary course of business and should be reported as such. Most companies in most capitalist
Capitalism

Capitalism is an economic system in which wealth, and the means of producing wealth, are private property and controlled rather than commonly, publicly, or state-owned and controlled....
 countries restructure themselves often, for example, so, it is argued, it is dishonest to claim that restructuring charges are unusual, one-time events that investors should not anticipate in the future.

There was a boom in the reporting of pro forma results starting in the late 1990s, with many dot-com companies
Dot-com company

A dot-com company, or simply a dot-com , is a company that does most of its business on the Internet, usually through a website that uses the popular Generic top-level domain, ".com" ....
 using the technique to recast their loss
Loss

Loss may refer to:*A negative difference between retail price and cost of production*An event in which the team or individual in question did not win....
es as profit
Profit (accounting)

Accounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses....
s, or at least to show smaller losses than the GAAP accounting showed. The U.S. Securities and Exchange Commission requires publicly traded companies
Public company

A public company usually refers to a company that is permitted to offer its registered Security for sale to the general public, typically through a stock exchange, but also may include companies whose stock is traded Over-the-counter via market makers who use non-exchange quotation services such as the OTCBB and the Pink Sheets....
 in the United States to report GAAP-based financial results, and has cautioned companies that using pro forma results to obscure GAAP results would be considered fraud
Fraud

In the broadest sense, a fraud is a deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction....
 if used to mislead investors.

Business


In business
Business

A business is a legally recognized organization designed to provide good s and/or Service to consumers. Businesses are predominant in capitalism economies, most being privately owned and formed to earn profit that will increase the wealth of its owners....
, pro forma financial statements are prepared in advance of a planned transaction
Transaction

A transaction is an agreement, communication, or movement carried out between separate entities or objects, often involving the exchange of items of value, such as information, goods, services and money....
, such as a merger, an acquisition, a new capital investment, or a change in capital structure such as incurrence of new debt
Debt

Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned....
 or issuance of equity
Equity

Equity is the name given to the set of law principles, in jurisdictions following the English law common law tradition, which supplement strict rules of law where their application would operate harshly, so as to achieve what is sometimes referred to as "natural justice"....
. The pro forma models the anticipated results of the transaction, with particular emphasis on the projected cash flows, net revenues and (for taxable entities) taxes. For example, when a transaction with a material impact on a company's financial condition is contemplated, the Finance Department will prepare, for management and Board review, a business plan
Business plan

A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals....
 containing pro forma financial statements
Financial statements

Financial statements are formal records of a business' financial activities.In British English, including United Kingdom company law, financial statements are often referred to as accounts, although the term financial statements is also used, particularly by accountants....
 demonstrating the expected impact of the proposed transaction on the company's financial viability. Lenders and investors will require such statements to structure or confirm compliance with debt covenants such as debt service reserve coverage and debt to equity ratio
Debt to equity ratio

Preferred shares can be considered part of debt or equity. Attributing preferred shares to one or the other is partially a subjective decision but will also take into account the specific features of the preferred shares....
s. Similarly, when a new corporation is envisioned, its founders will prepare pro forma financial statements
Financial statements

Financial statements are formal records of a business' financial activities.In British English, including United Kingdom company law, financial statements are often referred to as accounts, although the term financial statements is also used, particularly by accountants....
 for the information of prospective investors. Pro forma figures should be clearly labeled as such and the reason for any deviation from reported past figures clearly explained.

In trade transactions, a pro forma invoice
Invoice

An invoice or bill is a Commerce document issued by a sales to the buyer, indicating the product s, quantities, and agreed prices for products or Service s the seller has provided the buyer....
 is a document that states a commitment from the seller to sell goods to the buyer
Buyer

When someone gets characterised by their role as buyer of certain assets, the term "buyer" gets new meaning:A "merchandiser" or buyer is a person who purchases finished goods, typically for resale, for a firm, government, or organization....
 at specified prices and terms. It is used to declare the value of the trade. It is not a true invoice, because it is not used to record accounts receivable
Accounts receivable

Accounts receivable is one of a series of accounting transactions dealing with the billing of customers who owe money to a person, company or organization for good and Service that have been provided to the customer....
 for the seller and accounts payable
Accounts payable

Accounts payable is a file or account that contains money that a person or company owes to suppliers, but has not paid yet . When you receive an invoice you add it to the file, and then you remove it when you pay....
 for the buyer. Simply, a 'Proforma Invoice' is Confirmed Purchase Order where buyer and Supplier agrees on the Product Detail and its cost (usually-Supplier currency) to be shipped to buyer. Sales quote
Sales quote

A sales quote allows a prospective buyer to see what costs would be involved for the work they would like to have done. Many businesses provide Service s that cannot have an upfront price, as the costs involved can vary....
s are prepared in the form of a pro forma invoice which is different from a commercial invoice. It is used to create a sale and is sent in advance of the commercial invoice. The content of a pro forma invoice is almost identical to a commercial invoice and is usually considered a binding agreement although the price might change in advance of the final sale.

Banks usually prefer a pro forma invoice to a quotation for establishment of a letter of credit
Letter of credit

A letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the Letter of Credit....
 or for advance payment by the importer through his bank.

In some countries, customs
Customs

Customs is an authority or Government agency in a country responsible for collecting and safeguarding Duty and for controlling the flow of goods including animals, personal effects and hazardous items in and out of a country....
 may accept a pro forma invoice (generated by the import
Import

In economics, an import is any good or service brought into one country from another country in a legitimate fashion, typically for use in trade.It is a good that is brought in from another country for sale....
er and not the export
Export

Export goods or services are provided to foreign consumers by domestic Production theory basics. It is a good that is sent to another country for sale....
er) if the required commercial invoice is not available at the time when filing entry documents at the port of entry
Port of entry

A port of entry is a place where one may lawfully enter a country. It typically has a staff of persons who check passports and Visa and inspect luggage to assure that contraband is not imported....
 to get goods released from customs. The U.S. Customs and Border Protection
U.S. Customs and Border Protection

U.S. Customs and Border Protection is an agency of the United States Department of Homeland Security charged with regulating and facilitating international trade, collecting import duties, and enforcing hundreds of U.S....
, for example, uses pro forma invoices to assess duty
Duty (economics)

In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad....
 and examine goods, but the importer on record is required to post a bond
Surety bond

A surety bond is a contract among at least three parties:* The principal - the primary party who will be performing a contractual obligation* The obligee - the party who is the recipient of the obligation, and...
 and produce a commercial invoice within 120 days from the date of entry. If the required commercial invoice, is needed for statistical purposes the importer has to produce the commercial invoice within 50 days from the date Customs releases the goods to the importer.

Law


In law
LAW

LAW may refer to:* Anti-tank warfare, e.g. the US Army M72 LAW or the British Army LAW 80*Palestinian Society for the Protection of Human Rights ...
, pro forma court rulings
Court order

A court order is an official proclamation by a judge that defines the legal relationships between the parties to a Hearing , a lawsuit, an appeal or other court proceedings....
 are intended merely to facilitate the legal process (to move matters along).

Government


In certain Commonwealth
Commonwealth of Nations

The Commonwealth of Nations, also known as the Commonwealth or the British Commonwealth, is an intergovernmental organization of fifty-three independent member states....
 nations with a Westminster system
Westminster System

The Westminster system is a Democracy parliamentary system of government modelled after the British government . The term comes from the Palace of Westminster, the seat of the UK Parliament....
, such as the United Kingdom
United Kingdom

The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom , the UK or Britain,is a sovereign state located off the northwestern coast of continental Europe....
, Canada
Canada

Canada is a country occupying most of northern North America, extending from the Atlantic Ocean in the east to the Pacific Ocean in the west and northward into the Arctic Ocean....
, and Australia
Australia

Australia, officially the Commonwealth of Australia, is a country in the southern hemisphere comprising the Australia of the world's smallest continent, the major island of Tasmania, and numerous list of islands of Australia in the Indian Ocean and Pacific Oceans....
, pro forma bills are introduced immediately before consideration of the Speech from the Throne
Speech from the Throne

A speech from the throne is an event in certain monarchies in which the monarch reads a prepared speech to a complete session of parliament, outlining the government's agenda for the coming year....
. Pro forma bills are incomplete pieces of legislation and undergo only the first reading
Reading (legislature)

Reading is a mechanism by which a bill is introduced to, and approved by, a legislature....
 stage. They symbolize the authority of the parliament
Parliament

A parliament is a legislature, especially in those countries whose system of government is based on the Westminster system modeled after that of the United Kingdom....
 to discuss matters other than those specified by the head of state
Head of State

Head of state is the generic term for the individual or collective office that serves as the chief public representative of a monarchic or republican nation-state, federation, commonwealth or any other political state....
, for which ostensibly parliament was summoned. After first reading, the bill is never considered further.

In the Parliament of the United Kingdom
Parliament of the United Kingdom

The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislature in the United Kingdom and British overseas territories....
, the equivalents are the Outlawries Bill
Outlawries Bill

The Outlawries Bill is customarily introduced in the United Kingdom's British House of Commons at the start of each session of Parliament of the United Kingdom....
 in the House of Commons
British House of Commons

The House of Commons is the lower house of the Parliament of the United Kingdom, which also comprises the British monarchy and the House of Lords ....
 and the Select Vestries Bill
Select Vestries Bill

The Select Vestries Bill is customarily introduced in the House of Lords at the start of each session of Parliament of the United Kingdom.The bill is read after the Queen's Speech, but before any debate on the contents of the Speech....
 in the House of Lords
House of Lords

The House of Lords is the second house of the Parliament of the United Kingdom and is also commonly referred to as "the Lords". The Parliament comprises the British monarchy, the British House of Commons , and the Lords....
. In the Parliament of Canada
Parliament of Canada

The Parliament of Canada is Canada's legislature, seated at Parliament Hill in Ottawa, Ontario. The Governor General of Canada appoints the 105 members of the upper house, the Canadian Senate, on the recommendation of the Prime Minister of Canada....
, such bills are titled Bill C-1, An Act respecting the Administration of Oaths of Office, and Bill S-1, An Act relating to Railways
Bills C-1 and S-1

Bills C-1 and S-1, are Pro forma#Legislation introduced in the House of Commons of Canada and Senate of Canada at the opening of each session of the Parliament of Canada....
 in the Canadian House of Commons
Canadian House of Commons

The House of Commons is a component of the Parliament of Canada, along with the Canadian monarchy and the Senate of Canada. The House of Commons is a democracy elected body, consisting of 40th Canadian Parliament known as Members of Parliament ....
 and Canadian Senate
Canadian Senate

The Senate of Canada is a component of the Parliament of Canada, along with the Canadian monarchy and the Canadian House of Commons. The Senate consists of 105 members appointed by the Governor General of Canada on the Advice of the Prime Minister of Canada....
, respectively. In the Parliament of Australia
Parliament of Australia

The Parliament of Australia or Commonwealth Parliament is the legislature of government of Australia. It is bicameral, largely modelled in the Westminster System, but with some influences from the United States Congress....
 and the parliaments of the Australian states and territories
Parliaments of the Australian states and territories

The Parliaments of the Australian states and territories are legislative bodies within the federal framework of the Australia. Before the formation of the Commonwealth in 1901, the six Australian colonies were self-governing, with parliaments which had come into existence at various times between 1825, when the New South Wales Legislative Cou...
, the pro forma bills consist only of a short title
Short title

The short title is the formal name by which a piece of primary legislation is usually referred to in the United Kingdom and other Westminster-influenced jurisdictions ....
, and do not proceed beyond the first reading stage.

In the United States federal government
Federal government of the United States

The Federal Government of the United States is the central current reigning United States governmental body, established by the United States Constitution....
, either house
Chambers of parliament

Many parliaments or other legislatures consist of two chambers : an election lower house, and an upper house or Senate which may be appointed or elected by a different mechanism from the lower house....
 of the United States Congress
United States Congress

The United States Congress is the Bicameralism legislature of the Federal government of the United States of the United States of America, consisting of two houses, the United States Senate and the United States House of Representatives....
 (the United States House of Representatives
United States House of Representatives

The United States House of Representatives, commonly referred to as "the House", is one of the bicameralism of the United States Congress; the other is the United States Senate....
 or the United States Senate
United States Senate

The United States Senate is the upper house of the Bicameralism United States Congress, the lower house being the United States House of Representatives....
) can hold a pro forma session at which no formal business is conducted. This is usually to fulfill the obligation under the Constitution
United States Constitution

The Constitution of the United States of America is the supreme law of the United States. It is the foundation and source of the legal authority underlying the existence of the United States of America; the Federal Government of the United States; and all the State & local governments and Territorial Administrative bodies contained therein....
 "that neither chamber can adjourn for more than three days without the consent of the other." Pro forma sessions can also be used to prevent the President
President of the United States

The President of the United States is the head of state and head of government of the United States and is the highest political official in the United States by influence and recognition....
 from making recess appointment
Recess appointment

A recess appointment occurs when the President of the United States fills a vacant federal position, of a sufficiently senior level that the nomination must be confirmed by the United States Senate, while the Senate is in recess....
s, pocket-vetoing
Pocket veto

A pocket veto is a legislative maneuver in United States federal lawmaking that allows the President of the United States to indirectly veto a bill....
 bills, or calling the Congress into special session
Special session

In a legislature, a special session is a period when the body convenes outside of the normal legislative session. This most frequently occurs in order to complete unfinished tasks for the year , such as outlining the government's budget for the next fiscal year, biennium, or other period....
. Similar practices may exist in the state legislatures.