WASHINGTON - The Securities and Exchange Commission threatened to sue companies that mislead investors with pro forma accounting, which typically makes companies' earnings look better by excluding some costs.
''The antifraud provisions of the federal securities laws apply to a company issuing pro forma financial information,'' the SEC said on its Web site. The SEC also warned investors to view these widely used accounting reports with suspicion. Pro forma reports ''might create a confusing or misleading impression,'' the agency said.
Pro forma earnings, which are often highlighted in news releases weeks before official earnings are filed, have been used by hundreds of computer and Internet companies. This type of accounting excludes costs associated with mergers and acquisitions, noncash compensation, in-process research and development, and goodwill amortization.
The warning cited some examples of pro forma accounting - such as earnings before interest, taxes, depreciation and amortization, or EBITDA - that could prove fraudulent in certain circumstances. It said the SEC would be concerned if companies were to use EBITDA and other figures that address ''a limited feature of a company's overall financial results'' without clearly disclosing the basis of its accounting. The SEC also said company statements that omit ''material'' information, such as figures that would recast a loss as if it were a profit, also could be considered misleading.
The SEC said pro forma figures are prepared differently than required by US accounting rules and make it hard for investors to compare different firms' results.��/// //