what are the types of pro forma financial statements 
pro forma financial statements are projections of future expenses and revenues based on a company s past experience and future plans some standard pro forma statements include the following a budget anticipates the inflow of projected revenues and the outflow of funds for a defined future period usually a fiscal year a budget is based on certain assumptions about future expenses and revenues it takes into account past expenses and revenues and factors in the costs of the company s plans for the fiscal year a pro forma income statement uses the pro forma calculation method mainly to draw the attention of potential investors to specific numbers when a company issues its quarterly earnings announcement for example a company will report its actual sales and expenses for the quarter that just passed and in the same chart will list its projections of these numbers for the current quarter in this case the company is projecting the future based on its knowledge of past sales and expenses and factoring in expected changes a company may present a pro forma statement to inform investors about their internal assessment of the financial outcome of a proposed change in the business for example if a company is considering an acquisition or a merger it may publish a pro forma statement of the expected impact of the move on its future earnings and expenses in financial accounting a pro forma earnings report excludes unusual or nonrecurring transactions these excluded expenses could include declining investment values restructuring costs and adjustments made on the company s balance sheet that fix accounting errors from prior years accountants prepare financial statements in the pro forma method ahead of a proposed transaction such as an acquisition merger a change in a company s capital structure or new capital investment these are models that forecast the expected result of the proposed transaction they focus on estimated net revenues cash flows and taxes the statements are presented to the company s management to help it make a decision on a proposed action based on its potential benefits and costs limitations of pro forma statementsinvestors should be aware that a company s pro forma financial statements can hold figures or calculations that do not comply with gaap which is the set of standards followed by public companies for their financial statements 1in fact they can differ vastly pro forma results may contain adjustments to gaap numbers in order to highlight important aspects of the company s operating performance pro forma financials in the united states boomed in the late 1990s when dot com companies used the method to make losses appear like profits or at a minimum to reveal much greater gains than indicated through u s gaap accounting methods 2the u s securities and exchange commission sec responded by cautioning that publicly traded companies report and make public u s gaap based financial results as well the sec also clarified that it would deem using pro forma results to grossly misconstrue gaap based results and mislead investors fraudulent and punishable by law 1using pro forma results to grossly misconstrue gaap based results and mislead investors is deemed by the u s securities and exchange commission sec to be fraudulent and punishable by law 1