MAA310 Accounting and Society
Word limit: 3000 words (excluding references and abstract/executive summary)
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Background:
Cleaning and catering contractor Spotless Group declared its first dividend since returning to the ASX as it reported a 23.6 per cent rise in pro forma profit to $60.2 million. (Binsted, 2015)
Companies often disclose financial performance information that is not measured in accordance with the relevant accounting standards in their annual reports and in market announcements. The numbers reported are often referred to as pro forma earnings (or underlying profit or normalised earnings). Regulators have expressed concern that pro forma earnings can mislead users of financial statements (James and Michello, 2010).
Required:
You are required to write an essay which:
1. Defines pro forma earnings.
2. Explains the reasons firms may choose to announce pro forma earnings as an alternative to earnings (net profit after tax) calculated using Australian accounting standards.
3. Discusses the advantages and disadvantages for shareholders of firms reporting pro forma earnings rather than net profit after tax.
4. Discusses whether shareholders perceive pro forma earnings to be value-relevant.
5. Provides your opinion on whether firms should be prohibited from reporting pro forma earnings. You must justify your opinion.
Additional information:
You are expected to undertake research in order to complete this task. Use a minimum of five (peer-reviewed) academic or professional articles (in addition to the references listed below).
A word count must be included. Students exceeding the word limit by more than 10% will incur a mark penalty.
You are expected to comply with the Harvard referencing style
References:
Binsted, T. (2015). Spotless eyes acquisitions among the resources wreck. The Age (24 February 2015) http://www.theage.com.au/business/spotless-eyes-acquisitions-among-the-resources-wreck-20150223-13mwre#ixzz3kYcowXDQ accessed 2 September 2015.
James, K. L., & Michello, F. A. (2010). Pro forma versus GAAP reporting: An examination of differences in investor perceptions. Journal of Finance and Accountancy, 2, 1-16.
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