What Is Pro Forma Accounting?

Pro Forma Financial Statements refer to financial statements prepared using a basis other than the statutory financial report preparation basis. Statements prepared on the basis of accounting information in accordance with the International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), US Generally Accepted Accounting Principles (GAAP), etc. (instead of China's statutory accounting standards) are pro forma financial statements. Conducive to inspection by relevant investors.

Pro forma financial statements

Pro forma financial statements refer to the use of international accounting standards (instead of China's statutory accounting standards) to prepare accounting information for the reference of relevant investors.

Differences and analysis of statutory and pro forma accounting statements

According to relevant state regulations, when a company that issues H shares and B shares discloses its prospectus and periodic financial reports, it should disclose the accounting statements prepared in accordance with Chinese accounting standards for domestic investors to read and use them as legal accounting for joint stock companies. Statements should also disclose accounting statements prepared in accordance with International Accounting Standards based on the above-mentioned accounting statements after appropriate adjustments, for foreign investors to read. If there are significant differences between the two accounting statements, a description of the relevant differences will usually also be disclosed . Financial institutions to be listed, including commercial banks, securities companies, and insurance companies, etc., due to the special nature of their business activities and the wide range of service targets, in order to improve the quality of information disclosure and reduce risks of such companies, the forthcoming The Special Provisions on the Content and Format of Bank Prospectuses requires that joint-stock companies, while disclosing accounting statements prepared in accordance with Chinese accounting standards, should also disclose pro forma accounting statements adjusted in accordance with international accounting standards, so that investors can fully and fully understand the financial information of commercial banks . How to read and understand the two accounting statements, and how to analyze the differences between the two accounting statements and their causes are one of the concerns of investors.

Basis of preparation of accounting statements

The accounting calculation and the preparation of accounting statements by a joint-stock company shall comply with the requirements of the "Enterprise Accounting Standards" and the "Accounting System of a Joint Stock Company" and its supplementary regulations. "Enterprise Accounting Standards" were drafted and promulgated by the Ministry of Finance. Up to now, 10 specific accounting standards have been promulgated and first applied to joint stock companies. The "Accounting System of a Company Limited by Share" is formulated by the Ministry of Finance. Its basic contents include general descriptions, accounting subjects, accounting statements, and appendices. Generally, the format of accounting subjects and accounting statements must not be arbitrarily modified. Due to the obvious differences between commercial banks and general industrial and commercial enterprises, in order to fully and completely reflect the financial information of commercial banks, commercial banks that have been listed and are going to be listed generally follow the "financial enterprise accounting system" for daily accounting and preparation of accounting statements.

Pro forma accounting statements are generally prepared on the basis of statutory accounting statements with appropriate adjustments in accordance with international accounting standards, and disclosed in a format customary to foreign investors. Accounting subjects and accounting statement formats generally have greater autonomy. International Accounting Standards are issued by the International Accounting Standards Committee. So far, 39 specific standards and 18 interpretation announcements have been issued.

Due to certain differences in the basis for preparing accounting statements, the data and format of statutory accounting statements and pro forma accounting statements may differ accordingly.

Auditing Standards for Accounting Statements

According to relevant regulations, financial information publicly disclosed by a company must be audited by a certified public accountant, statutory accounting statements must be audited by a Chinese certified public accountant with securities business qualifications, and pro forma accounting statements must be audited by a qualified overseas accounting firm. Chinese certified public accountants conduct audits based on the "Independent Auditing Standards for Chinese Certified Public Accountants" and overseas accounting firms are based on "International Auditing Standards." The Independent Auditing Standards for Chinese Certified Public Accountants was drafted by the Chinese Institute of Certified Public Accountants and implemented after being submitted to the Ministry of Finance for approval. So far, three batches of 24 independent auditing specific standards, 6 practice announcements, and 3 basic standards have been issued. "International Auditing Standards" have been drafted and issued by the International Auditing Practice Committee under the International Federation of Accountants. So far, 38 auditing standards and 12 international audit bulletins have been issued.

During the audit implementation process, there may be some differences between Chinese and foreign certified public accountants in assessing audit risks, formulating audit strategies, identifying important audit areas, and even adopting specific audit methods.At the same time, audit concepts, actual work experience, and auditees The social and economic environment also has a certain impact on the professional judgment of certified public accountants. Especially for the audit of commercial banks, due to the large number and wide range of commercial banks, their business scope, number and complexity are far higher than those of general industrial and commercial enterprises. Generally, CPAs are required to have higher comprehensive, coordination, organizational capabilities and practical work experience.

Due to the different standards on which the audit is based and the influence of the professional judgment of the certified public accountant, the audited accounting statement data may also have certain differences.

Analysis of differences between statutory accounting statements and pro forma accounting statements

Due to differences in accounting standards, auditing standards, and other aspects, there may be differences in statutory accounting statements and pro forma accounting statements in terms of assets, liabilities, shareholder equity, income, expenses, and profits. Some of these differences are classified differences, which only affect assets, liabilities or both assets and liabilities, and do not affect shareholders 'equity, while others affect shareholders' equity. For investors, more attention should be paid to the differences that affect shareholders' equity.

Shareholders' equity generally includes equity, capital reserve, surplus reserve and undistributed profits. The number of changes in equity and capital reserve is relatively small, the reason for the change is single, and there is generally no difference in statutory and pro forma accounting statements. The surplus reserve is accrued based on a certain percentage of net profit after tax for the current year (usually 15% -20% in China). ), Undistributed profit is the balance of net profit after tax less the distributed portion (withdrawing surplus reserves and distribution of dividends) realized over the years. It can be seen that the difference in shareholders' equity is mainly affected by the difference in net profit, and the difference in income and expenses is the main component of the difference in net profit.