Pro forma financial statements are projected statements outlining what a company forecasts regarding their financial transactions for the following year. Pro forma statements might show potential income, costs, assets and liabilities among the certain disclosures required to be recorded on them.
Pro forma statements refer to projected numbers a company uses for estimating future financial plans and goals. A pro forma income statement is a common planning tool by businesses. When companies create these statements they are predicting what they think will happen in the future. If they plan on changing an accounting principle, they must disclose this on the statement because it could affect the translation and meaning of this document.
Pro forma statements are used for various reasons. Many times they are used when a merger is considered or for a new business plan that is being constructed. For both of these reasons, disclosures on the statements are very important to prevent people from being misled by the information the documents contain.
Any information that may appear unclear or could be misleading must be accompanied with a disclosure in the form of a footnote. These notes appear at the bottom of all pro forma financial statements.