Forma income often reflect outcomes of poor

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forma income often reflect outcomes of poor management decisions. Our analysis must not blin eliminate information contained in nonrecurring items by focusing solely on pro forma income. Crit- ics of pro forma income also argue that the items excluded by managers from GAAP income are inconsistent across companies and time. They contend that a major motive for pro forma incoi is to mislead stakeholders. Legendary investor Warren Buffett puts pro forma in context: "Wher. companies or investment professionals use terms such as 'EBITDA' and 'pro forma,' they wan: you to unthinkingly accept concepts that are dangerously flawed." (Berkshire Hathaway, Annual Repor;: The module also considered restructuring expenses. There are differences between IFRS ane U.S. GAAP on restructuring, but most are minor. The following differences relate to timing: Under IFRS, restructuring expense is recognized when there is a binding contract or a plan for the restructuring and if the affected employees expect the plan to be implemented. Und U.S. GAAP, restructuring expense can be recognized earlier because the trigger is manageri approval of a plan. Under IFRS, compensation for employees who will be terminated is recognized whe employees are deemed redundant. Under U.S. GAAP, restructuring expense can be recog- nized later, when the employees have been informed. The following difference relates to the restructuring expense amount: Consistent with other accruals under IFRS, a restructuring provision is recorded at its b estimate. This is usually the expected value or, in the case of a range of possible outcomes that are equally likely, the provision is recorded at the midpoint of the range. The U.S. G estimate is at the most-likely outcome; and if there is a range of possible outcomes, the provi- sion is recorded as the minimum amount of the range. This means that the financial statement differences between IFRS and U.S. GAAP for restructur- ings cannot be predicted unequivocally. Wemust review the restructuring footnote; and remember that cumulative expense is the same under both reporting systems. We also described tax expenses. There are three notable differences: two affect the income statement and one affects the balance sheet. With respect to the income statement: 1. Both U.S. GAAP and IFRS recognize deferred tax assets for timing differences and unus tax losses. However, under U.S. GAAP, a valuation allowance is set up if it is more like_ than not (probability> 50%) that some portion of the deferred tax assets will not be utiliz Under IFRS, the deferred tax asset is only recognized to the extent that the future benefit is probable (probability> 50%). That is, there is no deferred tax asset if the company does n expect to earn enough taxable profit in the future to use the tax credit. This means there are no valuation allowances in IFRS (although sometimes a company reports the "unrecogniz portion" of deferred tax assets). The net effect on income is identical but our review of
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