Matt StegerSeminar #8 – The Information Perspective on Decision Usefulness (cont.)September 17, 2009Scott concludes Chapter 5 of his Theory text by pointing out that while accountants should be guided by securities market reaction in determining usefulness of financial information, they should not necessarily be tempted to conclude that the “best accounting policy is the one that produces the greatest market price response” (165). The article from Accounting Horizons, which discusses the implications of pro forma financial reporting, provides an empirical illustration of Scott’s warning through an industry-specific analysis of pro forma reporting. Finally, an SEC press release from 2002 provides a real-life example of a corporation (Trump Hotels) that attempted to intentionally mislead the public and create a market response through its issuance of erroneous financial information delivered within the line items of pro forma financial reports.
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Generally Accepted Accounting Principles, U.S. Securities and Exchange Commission, Pro forma