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The term ''pro forma'' (
Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally a dialect spoken in the lower Tiber area (then known as Latium) around present-day Rome, but through ...
for "as a matter of form" or "for the sake of form") is most often used to describe a practice or document that is provided as a courtesy or satisfies minimum requirements, conforms to a norm or
doctrine Doctrine (from la, doctrina, meaning "teaching, instruction") is a codification of beliefs or a body of teachings or instructions, taught principles or positions, as the essence of teachings in a given branch of knowledge or in a belief syste ...
, tends to be performed perfunctorily or is considered a formality. The term is used in legal and business fields to refer to various types of documents that are generated as a matter of course.


Accounting

The ''pro forma'' accounting is a statement of the company's financial activities while excluding "unusual and nonrecurring transactions" when stating how much money the company actually made. Examples of expenses often excluded from ''pro forma'' results are company restructuring costs, a decline in the value of the company's investments, or other accounting charges, such as adjusting the current
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
to fix faulty accounting practices in previous years. There was a boom in the reporting of ''pro forma'' results in the US starting in the late 1990s, with many
dot-com companies A dot-com company, or simply a dot-com (alternatively rendered dot.com, dot com, dotcom or .com), is a company that does most of its business on the Internet, usually through a website on the World Wide Web that uses the popular top-level domain ". ...
using the technique to recast their losses as
profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...
s, or at least to show smaller losses than the US GAAP accounting showed. The U.S. Securities and Exchange Commission requires
publicly traded companies A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (list ...
in the United States to report US GAAP-based financial results, and has cautioned companies that using ''pro forma'' results to obscure US GAAP results would be considered
fraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compen ...
if used to mislead
investor An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
s.


Business


Financial statements

In
business Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...
, ''pro forma''
financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s are prepared in advance of a planned transaction, such as a merger, an acquisition, a new capital investment, or a change in capital structure such as incurrence of new
debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
or issuance of
stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...
. The ''pro forma'' models the anticipated results of the transaction, with particular emphasis on the projected
cash flows A cash flow is a real or virtual movement of money: *a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected ...
, net revenues and taxes. Consequently, ''pro forma'' statements summarize the projected future status of a company, based on the current financial statements. ''Pro forma'' figures should be clearly labeled as such and the reason for any deviation from reported past figures clearly explained. For example, when a transaction with a material effect on a company's financial condition is contemplated, the finance department will prepare, for management and
board Board or Boards may refer to: Flat surface * Lumber, or other rigid material, milled or sawn flat ** Plank (wood) ** Cutting board ** Sounding board, of a musical instrument * Cardboard (paper product) * Paperboard * Fiberboard ** Hardboard, a ty ...
review, a
business plan A business plan is a formal written document containing the goals of a business, the methods for attaining those goals, and the time-frame for the achievement of the goals. It also describes the nature of the business, background information on ...
containing ''pro forma''
financial statements Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
demonstrating the expected effect of the proposed transaction on the company's financial viability. Lenders and investors will require such statements to structure or confirm compliance with
debt covenant A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
s such as debt service reserve coverage and
debt to equity ratio The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as risk, gearing or leverage. The two ...
s. Similarly, when a new corporation is envisioned, its founders will prepare ''pro forma''
financial statements Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
for the information of prospective investors. Also, banks will request ''pro forma'' statements in lieu of
tax return A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer. Taxation is one ...
s for a start up business in order to verify cash flow before issuing a loan or line of credit.


Invoices

In trade transactions, a ''pro forma
invoice An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer. Paym ...
'' is a document that states a commitment from the seller to sell
goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not ...
to the buyer at specified prices and terms. It is used to declare the value of the trade. It is not a true invoice because it is not used to record accounts receivable for the seller and accounts payable for the buyer. Simply, a "''pro forma'' invoice" is a "confirmed
purchase order A purchase order is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from exte ...
" where buyer and supplier agree on detail and cost of the product to be shipped to the buyer. A ''pro forma'' invoice is generally raised when the seller is ready for dispatching the material but they want to ensure that the payment is being sent before dispatch. And similarly, the customer also wants to know which components are included in the ''pro forma'' invoice to avoid disagreements later. A sales quote is prepared in the form of a ''pro forma'' invoice, which is different from a
commercial invoice When used in foreign trade, a commercial invoice is a customs document. It is used as a customs declaration provided by the person or corporation that is exporting an item across international borders. Although there is no standard format, the doc ...
. It is used to create a sale and is sent in advance of the
commercial invoice When used in foreign trade, a commercial invoice is a customs document. It is used as a customs declaration provided by the person or corporation that is exporting an item across international borders. Although there is no standard format, the doc ...
. The content of a ''pro forma'' invoice is almost identical to a commercial invoice and is usually considered a
binding agreement A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
, but because a ''pro forma'' invoice is not a legally-binding document, the price may change in advance of the final sale. A ''pro forma'' invoice can also be used for shipments containing items that ''are not'' being bought or sold, such as gifts, samples and personal belongings, whereas a commercial invoice is used when the commodities shipped ''are'' being bought or sold. However, it is best to use a customs invoice or declaration as border officials require values for the export declaration. A Customs Invoice or declaration is commonly used in
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island coun ...
for air parcel post shipments.


International trade

A ''pro forma'' invoice is the same as a commercial invoice, which, when used in international trade, represents the details of an international sale to customs authorities. A ''pro forma'' invoice is presented in the place of a commercial invoice when there is no sale between the sender and the importer (for example, in the case of an RMA for replacement goods), or if the terms of the sale between the seller and the buyer are such that a commercial invoice is not yet available at the time of the international shipment. A ''pro forma'' invoice is required to state the same facts that the commercial invoice would and the content is prescribed by the governments who are a party to the transaction. In some countries,
customs Customs is an authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods, including animals, transports, personal effects, and hazardous items, into and out of a country. Traditionally, customs ...
may accept a ''pro forma'' invoice (generated by the
import An import is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade. In international trade, the importation and exportation of goods are limited ...
er and not the
export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is a ...
er) if the required commercial invoice is not available at the time when filing entry documents at the
port of entry In general, a port of entry (POE) is a place where one may lawfully enter a country. It typically has border security staff and facilities to check passports and visas and to inspect luggage to assure that contraband is not imported. Internat ...
to get goods released from customs. The U.S. Customs and Border Protection, for example, uses ''pro forma'' invoices to assess
duty A duty (from "due" meaning "that which is owing"; fro, deu, did, past participle of ''devoir''; la, debere, debitum, whence "debt") is a commitment or expectation to perform some action in general or if certain circumstances arise. A duty may ...
and examine goods, but the importer on record is required to post a
bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
and produce a commercial invoice within 120 days from the date of entry. If the required commercial invoice is needed for statistical purposes, the importer has to produce the commercial invoice within 50 days from the date Customs releases the goods to the importer.


Law

In law, ''pro forma'' court rulings are intended merely to facilitate the legal process (indeed to move matters along).


Government


Westminster system

In certain
Commonwealth A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with "republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the ...
nations with a Westminster system, such as the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
, Canada, and
Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
, ''pro forma'' bills are introduced immediately before consideration of the
speech from the throne A speech from the throne, or throne speech, is an event in certain monarchies in which the reigning sovereign, or a representative thereof, reads a prepared speech to members of the nation's legislature when a session is opened, outlining t ...
. ''Pro forma'' bills are incomplete pieces of legislation and undergo only the first reading stage. They symbolize the authority of the
parliament In modern politics, and history, a parliament is a legislative body of government. Generally, a modern parliament has three functions: representing the electorate, making laws, and overseeing the government via hearings and inquiries. Th ...
to discuss matters other than those specified by the
head of state A head of state (or chief of state) is the public persona who officially embodies a state Foakes, pp. 110–11 " he head of statebeing an embodiment of the State itself or representatitve of its international persona." in its unity and ...
, for which ostensibly parliament was summoned. After first reading, the bill is never considered further. The ''pro forma'' bill was first introduced in the
House of Commons of England The House of Commons of England was the lower house of the Parliament of England (which incorporated Wales) from its development in the 14th century to the union of England and Scotland in 1707, when it was replaced by the House of Commons ...
in 1558. In the
Parliament of the United Kingdom The Parliament of the United Kingdom is the supreme legislative body of the United Kingdom, the Crown Dependencies and the British Overseas Territories. It meets at the Palace of Westminster, London. It alone possesses legislative suprem ...
, the equivalents are the Outlawries Bill in the
House of Commons The House of Commons is the name for the elected lower house of the bicameral parliaments of the United Kingdom and Canada. In both of these countries, the Commons holds much more legislative power than the nominally upper house of parliament. T ...
and the
Select Vestries Bill A bill for the better regulating of Select Vestries, usually referred to as the Select Vestries Bill, is customarily the first bill introduced and debated in the United Kingdom's House of Lords at the start of each session of Parliament. The equiv ...
in the
House of Lords The House of Lords, also known as the House of Peers, is the upper house of the Parliament of the United Kingdom. Membership is by appointment, heredity or official function. Like the House of Commons, it meets in the Palace of Westminst ...
. In the
Parliament of Canada The Parliament of Canada (french: Parlement du Canada) is the federal legislature of Canada, seated at Parliament Hill in Ottawa, and is composed of three parts: the King, the Senate, and the House of Commons. By constitutional convention, ...
, such bills are titled Bill C-1, An Act respecting the Administration of Oaths of Office, and Bill S-1, An Act relating to Railways in the
House of Commons of Canada The House of Commons of Canada (french: Chambre des communes du Canada) is the lower house of the Parliament of Canada. Together with the Crown and the Senate of Canada, they comprise the bicameral legislature of Canada. The House of Commo ...
and
Senate of Canada The Senate of Canada (french: region=CA, Sénat du Canada) is the upper house of the Parliament of Canada. Together with the Crown and the House of Commons, they comprise the bicameral legislature of Canada. The Senate is modelled after the ...
, respectively. In the
Australian House of Representatives The House of Representatives is the lower house of the bicameral Parliament of Australia, the upper house being the Senate. Its composition and powers are established in Chapter I of the Constitution of Australia. The term of members of ...
, a new bill is drafted at the start of each parliamentary term (in the 47th Parliament this was th
Customs Amendment Bill 2022
and presented by the Prime Minister. The bill undergoes the first reading, but a second reading is not moved unlike normal bills. However, departing from British and Canadian tradition, the contents of the bills do address the matters referred to in its title, and could theoretically be enacted like any other normal bill. This practice does not extend to the
Australian Senate The Senate is the upper house of the bicameral Parliament of Australia, the lower house being the House of Representatives. The composition and powers of the Senate are established in Chapter I of the Constitution of Australia. There are a t ...
; instead other formal business is conducted (such as question time) before consideration of the governor-general's speech.


United States

In the federal government of the United States, either
house A house is a single-unit residential building. It may range in complexity from a rudimentary hut to a complex structure of wood, masonry, concrete or other material, outfitted with plumbing, electrical, and heating, ventilation, and air cond ...
of the
Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
(the House of Representatives or the
Senate A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
) can hold a ''pro forma'' session at which no formal business is expected to be conducted. This is usually to fulfill the obligation under the
Constitution A constitution is the aggregate of fundamental principles or established precedents that constitute the legal basis of a polity, organisation or other type of entity and commonly determine how that entity is to be governed. When these pr ...
"that neither chamber can adjourn for more than three days without the consent of the other." ''Pro forma'' sessions can also be used to prevent the
president President most commonly refers to: *President (corporate title) * President (education), a leader of a college or university * President (government title) President may also refer to: Automobiles * Nissan President, a 1966–2010 Japanese ...
from pocket-vetoing bills, or calling the Congress into
special session In a legislature, a special session (also extraordinary session) is a period when the body convenes outside of the normal legislative session. This most frequently occurs in order to complete unfinished tasks for the year (often delayed by confli ...
. They have also been used to prevent presidents from making
recess appointment In the United States, a recess appointment is an appointment by the president of a federal official when the U.S. Senate is in recess. Under the U.S. Constitution's Appointments Clause, the President is empowered to nominate, and with the a ...
s. In 2012 President
Barack Obama Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party (United States), Democratic Party, Obama was the first Af ...
attempted to make four appointments during a ''pro forma'' session, calling the practice of blocking recess appointments into question. However, in 2014 the
Supreme Court of the United States The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. Federal tribunals in the United States, federal court cases, and over Stat ...
in ''
NLRB v. Noel Canning ''National Labor Relations Board v. Noel Canning'', 573 U.S. 513 (2014), was a United States Supreme Court case in which the Court unanimously ruled that the President of the United States cannot use his authority under the Recess Appointment Cla ...
'' determined that the President had improperly used his presidential power to make these appointments, stating that while the Senate was in recess punctuated by ''pro forma'' sessions the period of time between the sessions was not long enough to invoke such power. In April 2020, President
Donald Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021. Trump graduated from the Wharton School of the University of P ...
claimed that the president's constitutional power to "convene or adjourn Congress" "on extraordinary occasions", a power that has never been used to adjourn Congress, though it has been used on rare occasions to convene Congress, empowers him to suspend both houses of Congress (overriding the pro forma procedure) and enabling him to make appointments to vacant government positions while Congress is suspended. The suggestion was condemned by Joe Lockhart. In addition, the President's Constitutional power to adjourn either or both houses of Congress is limited to situations in which the "Time of Adjournment" is disagreed upon between the House and Senate creating a "Case of Disagreement", which implicates Article I, Section 5 of the Constitution, which prohibits either house of Congress from adjourning for more than three days without the consent of the other house of Congress. However, the system of pro forma sessions every three days by both houses of Congress would appear to represent an obstacle to finding a Constitutional "Case of Disagreement" between the houses of Congress regarding an adjournment of more than three days if neither house of Congress ever deems itself adjourned for more than three days and therefore never seeks the consent of the other house of Congress to adjourn and therefore never creates a situation in which a "Case of Disagreement" could arise to authorize the President to exercise this power. Similar practices exist in the state legislatures, and for similar reasons; for example, in
Minnesota Minnesota () is a state in the upper midwestern region of the United States. It is the 12th largest U.S. state in area and the 22nd most populous, with over 5.75 million residents. Minnesota is home to western prairies, now given over t ...
, legislative bodies have the same every-three-days meeting requirement that Congress has. ''Pro forma'' sessions are held to meet this requirement.


See also

*
Buzzword A buzzword is a word or phrase, new or already existing, that becomes popular for a period of time. Buzzwords often derive from technical terms yet often have much of the original technical meaning removed through fashionable use, being simply used ...
* Choice architecture *
Customer service Customer service is the assistance and advice provided by a company to those people who buy or use its products or services. Each industry requires different levels of customer service, but in the end, the idea of a well-performed service is that ...
* Demand chain *
Point of sale The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...
*
Retailing Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
*
Sales (accounting) In bookkeeping, accounting, and financial accounting, net sales are operating revenues earned by a company for selling its products or rendering its services. Also referred to as revenue, they are reported directly on the income statement as ''Sa ...
* Sales Incentive Plan *
Sales process engineering Sales process engineering is intended to design better ways of selling and make salespeople's efforts more productive. It has been described as "the systematic application of scientific and mathematical principles to achieve the practical goal ...
* Sales management * Sales territory *
Sales variance Sales variance is the difference between actual sales and budgeted sales. It is used to measure the performance of a sales function, and/or analyze business results to better understand market conditions. There are two reasons actual sales can va ...
* Selling *
Trade Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct exc ...
* Transaction * Vendor


References

{{DEFAULTSORT:Pro Forma Financial statements Latin words and phrases de:Pro forma