Pro forma, a Latin term meaning "as a matter of form is applied to the process of presenting financial projections for a specific time period in a standardized format. Businesses use pro forma statements for decision-making in planning and control, and for external reporting to owners, investors, and creditors. Computer-assisted modeling has made assumption testing more efficient. The use of powerful processors permits online, real-time decision making through immediate calculations of alternative cash flow statements, balance sheets, and income statements.
When a company changes an accounting method, it uses pro forma financial statements to report the cumulative effect of the change for the period during which the change occurred. To enable comparison of the pro forma financial statements with previous financial statements, the company would present the financial statements for prior periods as originally reported, show the cumulative effect of. Both the American Institute of Certified Public Accountants (aicpa) and the Securities and Exchange Commission (SEC) require standard formats for businesses in constructing and presenting pro forma statements; new SEC rules require that, to avoid misrepresentation, companies issuing pro forma statements must also show the most comparable statement on the company's finances, prepared using Generally Accepted Accounting Principles (gaap alongside.