Even the Securities and Exchange Commission can exercise a prerogative to change its mind, as the staff did recently regarding pro forma adjustments to financial statements.

At a national accounting conference in December, staff members with the SEC's Division of Corporation Finance offered some ideas on how companies can assure they comply with requirements under Regulation S-X to present adjustments in a pro forma income statement. Companies might provide a pro forma income statement with registration statements, a Form 8-K, and other filings when it needs to explain a significant recent or expected transaction, like a business combination, acquisition, roll-up, or tender offer.

The staff walked through a number of examples of events that might give rise to a pro forma adjustment to help illustrate when companies would make adjustments for such events, and when they might not. One of the criteria the staff addressed was whether a given event would be expected to have a “continuing impact” on the company. In December, the staff told companies that they generally interpret “continuing impact” to mean that an event would be expected to affect operations or recur for a period of time greater than a year from the date the event initially occurred.

More recently, however, Ryan Milne, an associate chief accountant with the SEC, said staff members have considered some pro forma adjustments that got them thinking. They told a late-June gathering of the Center for Audit Quality's SEC Regulations Committee that they now regard events or items to have a continuing impact if they are not “one time” events. The staff provided some examples of items that might indicate a pro forma adjustment is in order that fit into this new line of thinking—like a bridge loan that might be incurred for a period of less than 12 months or amortization of an acquired intangible asset with a lifespan of less than 12 months.

Todd Hardiman, another associate chief accountant at the SEC said the new view does not affect the staff's thinking when it comes to the pro forma effect of transaction expenses incurred as part of a business combination. He says the staff's guidance explained in the Financial Reporting Manual Section 3250 is still applicable.