SEC Fires Warning Shot Over Tech Statements

The Securities & Exchange Commission (SEC) has told investors to be wary of the financial statements of many high-tech companies.

Its latest Investor Alert has cautioned against taking pro forma announcements - the kind favored by companies such as Amazon, Yahoo and Cisco - at face value.

The watchdog agency said such statements should be treated with "appropriate and healthy skepticism."

"Because 'pro forma' financial information by its very nature departs from traditional accounting conventions, its use can make it hard for investors to compare an issuer's financial information with other reporting periods and with other companies," the Alert said.

The Alert will prove uncomfortable to many high-tech companies, that issue pro forma statements - which depart from GAAP - in an effort to make their figures look more healthy.

Key SEC recommendations include:

  • What is the company assuming?
  • What is the company not saying?
  • How do the "pro forma" results compare with GAAP-based financials?
  • Are you reading "pro forma" results or a summary of GAAP-based financials?

The Alert is available on the SEC website.

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