An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Kevin L. James
Middle Tennessee State University

Franklin Michello
Middle Tennessee State University

Abstract: The purpose of this exploratory study is to directly examine investor perceptions of pro forma earnings and to investigate whether differences exist between professional and non-professional investors in their perceptions of pro forma earnings and GAAP earnings reports. Results indicate that both professional and non-professional investors perceive pro forma earnings reports as less useful than GAAP reports. This finding contradicts previous research based on stock return data. Overall, results also indicate that non-professional investors may fail to adequately adjust for potential management bias in pro forma reports which could lead to suboptimal decision-making and poor or negative returns. Both groups of respondents agreed that standards should be developed for pro forma reports and that pro forma earnings releases should be reviewed by a certified public accountant prior to public release.

Back to Session Listing

AAA Home Page