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Prospective Financial Information under ISAE 3400 for ACCA AAA

Updated 11 October 2026 · Fact-checked

Prospective financial information (PFI) is financial information based on assumptions about future events and actions, such as a forecast or projection. Under ISAE 3400 the practitioner examines the assumptions, the preparation and the presentation, then gives a negative-assurance style conclusion. You never give assurance that the results will actually be achieved.

Understand Prospective Financial Information (ISAE 3400)

Prospective financial information (PFI) is financial information about the future. It rests on assumptions about events that may happen and actions management may take. Examples are a cash flow forecast for a bank loan, a budget, or profit projections in a prospectus.

There are two main types. A forecast is based on assumptions about what management expects to happen, including its expected actions (best-estimate assumptions). A projection is based on hypothetical assumptions, or a mix of hypothetical and best-estimate assumptions. A projection answers a "what if" question, for example what happens if a new factory opens.

ISAE 3400 deals with the examination of PFI. The practitioner is not checking whether the future will happen. Nobody can. The practitioner checks three things: whether the assumptions are reasonable, whether the PFI is properly prepared on the basis of those assumptions, and whether it is properly presented with all material assumptions disclosed and the basis (best-estimate or hypothetical) clear.

Because the future is uncertain, the assurance is limited. The practitioner reports in negative form: nothing has come to attention to suggest the assumptions are not a reasonable basis for the PFI. The report also warns that actual results are likely to differ, as events often do not occur as expected.

The practitioner needs knowledge of the business, the reliability of past forecasts, and the period covered. The longer the period, the weaker the evidence for assumptions. Users must be told the PFI may not suit purposes other than the stated one, especially if it is a projection with hypothetical assumptions.

Key rules to remember

Forecast: Forecast = PFI based on best-estimate assumptions; Assumptions reflect management's expected events and actions at the date of preparation.
Projection: Projection = PFI based on hypothetical assumptions (or a mix with best-estimate); Used for "what if" scenarios. Report must say it is a projection and warn on use.
Three matters to be satisfied about: Assumptions reasonable + PFI properly prepared on those assumptions + PFI properly presented; These are the core of the examination and the conclusion.
Form of assurance: Negative-assurance conclusion on assumptions; no assurance on achievability; Report states actual results are likely to differ from PFI.
Assumption test: Best-estimate assumptions: reasonable basis. Hypothetical assumptions: consistent with the purpose of the PFI; Different test for each type of assumption.

How to solve Prospective Financial Information (ISAE 3400) questions

Use this order for any question on examining or reporting on a forecast, projection or cash flow forecast. Tie each point to the scenario given.

1Identify the PFI: forecast or projection, its purpose, who will use it and the period covered.
2Confirm the engagement basics: agree terms, understand the purpose and the intended users, and check you have the skills and enough knowledge of the business.
3Assess the assumptions: split them into best-estimate and hypothetical, and identify which are most sensitive or material.
4Plan and perform procedures on assumptions: compare with past results and past forecast accuracy, industry data, contracts, orders, board minutes and approved plans.
5Test preparation: check arithmetic, consistency with accounting policies, links between income, cash flow and balance sheet figures, and that the model works as intended.
6Review presentation and disclosure: assumptions clearly stated, basis and sensitivity disclosed, hypothetical assumptions identified.
7Obtain written representations from management on the assumptions and the intended use of the PFI.
8Report: state what was examined, give the negative-assurance conclusion, add the warning that actual results may differ, and modify the report if assumptions are unreasonable or disclosure is inadequate.
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Quickest way: A-P-P-R: Assumptions, Preparation, Presentation, Report

When to use it: Use it when time is short and the question asks for procedures or the report content for a forecast.

A: list the key assumptions from the scenario (sales growth, margins, funding, timing of receipts) and say how you would test each.
P: preparation. Check the maths, the model and consistency with accounting policies and past data.
P: presentation. Check disclosure of assumptions, basis and risks.
R: report. Give the negative-assurance wording and the warning that results may differ.
Add one comment on the realism of the scenario, such as an optimistic growth rate against history.

Common mistakes in Prospective Financial Information (ISAE 3400)

Saying the practitioner gives assurance that the forecast will be achieved.
Students mix PFI work with audit of historical figures.
Fix: State that assurance is only on the assumptions and preparation. Actual results will probably differ.
Confusing forecast and projection.
Both are called future estimates and the terms sound alike.
Fix: Forecast = best-estimate assumptions. Projection = hypothetical assumptions. Say which applies.
Listing generic audit procedures such as inventory counts.
Students recall standard audit steps rather than PFI-specific work.
Fix: Focus on testing assumptions against history, contracts and market data, and on checking the model.
Forgetting to examine presentation and disclosure.
Students concentrate on the numbers.
Fix: Always cover whether assumptions, basis and key sensitivities are disclosed.
Not applying the scenario: accepting a high growth rate without comment.
Students write learned lists instead of analysing the facts.
Fix: Challenge figures that conflict with past results or the market, and show scepticism.
Giving a positive opinion in the report.
Students copy the audit report form.
Fix: Use negative-assurance wording and include the warning that results may differ.

Worked examples

Example 1

Ridge Ltd, a manufacturer, asks you to examine its 12-month cash flow forecast for a bank loan application. It assumes sales growth of 25% against 4% a year in recent history, and that a major customer renews its contract next month. Explain the procedures you would perform on these assumptions.

Show the solution

Identify the PFI: a forecast, as it uses best-estimate assumptions, prepared for the bank, covering 12 months.
Sales growth of 25%: compare with the 4% history and with industry growth data. Obtain evidence of new orders, signed contracts and capacity to meet extra demand. Ask management why growth will accelerate and check support.
Customer renewal: inspect correspondence, draft or signed renewal terms and the customer's order history. Consider confirming directly with the customer if appropriate.
Consider the effect of the assumptions: test sensitivity of cash flow if growth is 4% or the contract is lost.
Preparation: recompute the model, check cash receipts timing against credit terms and past collection patterns, and check consistency with accounting policies.
Presentation: check the key assumptions and risks are disclosed to the bank and that the document says it is a forecast.
Show scepticism: the 25% growth looks optimistic. If it is unsupported, conclude the assumptions may not be reasonable.

Answer: Examine the growth and renewal assumptions against history, contracts and market data, test the model and sensitivity, review disclosure, and be sceptical of the 25% growth. If it cannot be supported, modify the report.

Example 2

You have completed an examination of a company's projection prepared on a hypothetical assumption that a new product launch gets regulatory approval. Describe what your report should contain.

Show the solution

Title and addressee, and identification of the PFI examined.
Statement that the PFI is management's responsibility and the practitioner examined it in accordance with ISAE 3400.
Identify it as a projection, and state the hypothetical assumptions, including approval of the product.
Negative assurance: nothing has come to attention that causes the practitioner to believe the assumptions do not provide a reasonable basis for the projection, given the hypothetical assumptions.
Opinion that the PFI is properly prepared on the basis of the assumptions and presented in accordance with the relevant basis.
Warning that actual results are likely to differ because events often do not occur as expected, and that the differences may be material.
Caution on use: the projection was prepared for a specific purpose and may not be appropriate for others. Include date, signature and address of the practitioner.

Answer: The report names the projection, states the hypothetical assumption, gives negative assurance on the assumptions, confirms preparation and presentation, and warns that actual results may differ and that the projection suits only its stated purpose.

Exam tips

Always say whether the PFI is a forecast or a projection, as the type changes the assumption test.
Link every procedure to a named assumption from the scenario. Generic lists score poorly.
Use professional scepticism: challenge optimistic figures against past performance and market data.
Remember the report wording: negative assurance plus the warning that actual results may differ.
Mention management representations and the risk of the period covered when the forecast is long.

Practice questions from Audit-related and assurance services

Prospective Financial Information (ISAE 3400) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA FinalAuditor's Assurance on Prospective Financial Information

Prospective Financial Information (ISAE 3400): frequently asked questions

What is the difference between a forecast and a projection in ISAE 3400?

A forecast uses best-estimate assumptions about what management expects. A projection uses hypothetical assumptions, or a mix, to answer a "what if" question. The report must make clear which one it is.

Does the practitioner give assurance that the forecast will be met?

No. The practitioner only gives limited, negative assurance on the reasonableness of the assumptions, and on preparation and presentation. The report warns that actual results are likely to differ.

How do you review forecast assumptions in the AAA exam?

Compare them with past results, past forecast accuracy, industry data, contracts and approved plans. Then test how sensitive the forecast is to changes in the key assumptions and show scepticism where figures look optimistic.

What should be checked in a cash flow forecast examination?

Check the assumptions on receipts, payments and funding, the arithmetic and model logic, consistency with accounting policies, and the disclosure of assumptions and risks. Timing of cash flows is often a key issue.