Advanced Auditing, Assurance and Professional Ethics · Prospective Financial Information and Other Assurance Services

Auditor's Assurance on Prospective Financial Information (SAE 3400)

Updated 5 October 2026 · Fact-checked

Prospective financial information (PFI) is a forecast or projection built on assumptions about future events. Under SAE 3400, the auditor gives a negative-form statement on whether the assumptions give a reasonable basis, and a positive opinion on proper preparation and presentation. The report cautions that actual results will likely differ. Solve questions by stating the type, assumptions, opinion and limits.

Understand Auditor's Assurance on Prospective Financial Information

Prospective financial information (PFI) is financial information based on assumptions about events that may happen in future and actions management may take. It takes two forms: a forecast and a projection. Both can be a full set of financial statements or just one or more elements, such as expected sales.

A forecast is PFI built on best-estimate assumptions. These are management's assumptions about what is expected to happen, given the conditions it expects. A projection is PFI built on hypothetical assumptions, or on a mix of hypothetical and best-estimate assumptions. A hypothetical assumption is about events that need not necessarily happen, for example a new plant is commissioned, or demand rises by a stated percentage. A projection answers the question: what if?

The future is uncertain, so the auditor cannot give the same level of assurance as on historical financial information. The auditor can examine how the PFI is prepared, whether it is consistent with the assumptions, and whether it is presented properly. The auditor cannot vouch that the forecast will be achieved. This is why the assurance on assumptions is limited and stated in negative form.

The auditor examines the assumptions by checking whether they are reasonable and whether they give a reasonable basis for the PFI. For hypothetical assumptions, the question is different. The auditor checks that they are consistent with the purpose of the information and that nothing suggests they are unrealistic. The auditor also checks the mathematical accuracy of the computations and the consistency with accounting policies expected to be used.

The report then carries three things: what the auditor did, a conclusion on the assumptions, and an opinion on preparation and presentation. It also carries a clear caution that actual results are likely to differ, because events often do not occur as expected. A report on a projection also states that the PFI is for a particular purpose and that its use for other purposes may not be appropriate.

Key rules to remember

Forecast: Forecast = PFI based on best-estimate assumptions; Management expects these events and actions to occur. Usually suits general use.
Projection: Projection = PFI based on hypothetical assumptions (or a mix with best-estimate assumptions); Answers a what-if question. Usually suits limited use, for a stated purpose.
Assurance on assumptions: Nothing has come to attention that causes belief that the assumptions do not provide a reasonable basis for the PFI; Negative-form assurance, which is a lower level of assurance than for historical financial information. For a projection, the wording also covers that the assumptions are consistent with the purpose of the information.
Opinion on the PFI: PFI is properly prepared on the basis of the assumptions and is presented in accordance with the relevant framework; This is a positive opinion on preparation and presentation, not on achievability.
Caution on actual results: Actual results are likely to differ from the PFI, as anticipated events frequently do not occur as expected; Include it in your report wording. The difference may be material.

How to solve Auditor's Assurance on Prospective Financial Information questions

Use this order for any theory or case question on assurance over PFI. It keeps the answer in provision-facts-conclusion form.

1Identify the PFI in the facts. Say whether it is a forecast (best-estimate assumptions) or a projection (hypothetical assumptions or a mix).
2State the purpose and intended users. This decides whether general or limited use is suitable, and whether the assumptions are appropriate.
3Set out the auditor's work: understand the entity and how management prepared the PFI, evaluate the support for the assumptions, and check the computations and consistency with accounting policies.
4Apply the test to the assumptions. Best-estimate assumptions need a reasonable basis. Hypothetical assumptions need to be consistent with the purpose of the information.
5State the assurance given: a negative-form statement on the assumptions, and a positive opinion on proper preparation and presentation. Note that this is a lower level of assurance than for historical financial information.
6Describe the report: title, addressee, identification of the PFI, reference to SAE 3400 or relevant standards, management's responsibility, the conclusion on assumptions, the opinion, and the caution on actual results.
7Conclude on any problem found. If assumptions are unreasonable or disclosure is inadequate, the auditor gives a qualified or adverse opinion, or withdraws. If scope is limited, the auditor qualifies or disclaims.

Quickest way: Four-line answer frame

When to use it: Use it when the question is short or you have limited time, such as a 4 to 5 mark theory question.

Line 1: Define the PFI and name it as forecast or projection from its assumptions.
Line 2: Say the auditor checks assumptions, computations and presentation.
Line 3: Write the negative-form wording on the assumptions and the positive opinion on preparation and presentation.
Line 4: Add the caution that actual results will likely differ, and that a projection suits only its stated purpose.

Common mistakes in Auditor's Assurance on Prospective Financial Information

Saying the auditor gives positive, high assurance that the forecast will be achieved.
You carry over the reasonable assurance of a statutory audit of historical statements.
Fix: State that the auditor does not vouch that the results will be achieved. The statement on assumptions is negative in form, and the positive opinion covers only preparation and presentation.
Mixing up a forecast and a projection.
Both words look like synonyms in everyday use.
Fix: Link each to its assumptions. Forecast means best estimate. Projection means hypothetical or mixed.
Applying the same assumption test to hypothetical assumptions as to best-estimate ones.
You memorise only the phrase reasonable basis.
Fix: For hypothetical assumptions, check consistency with the purpose of the information and that they are not clearly unrealistic.
Leaving out the caution that actual results may differ.
It feels like a minor disclaimer.
Fix: Treat it as an expected element of the report and write it in every answer on report wording.
Giving a positive opinion on the assumptions themselves.
You blend the opinion on preparation with the conclusion on assumptions.
Fix: Keep two separate statements: negative-form on assumptions, positive opinion on preparation and presentation.
Ignoring who will use the PFI.
You focus on the numbers, not the engagement terms.
Fix: Always state intended users and purpose. A projection is generally for limited use, and the report must say so.

Worked examples

Example 1

Case: Sundaram Textiles Ltd wants a loan for a new unit. The unit is already under construction and is on schedule. Management prepares a three-year profit statement. It assumes the unit will be completed to the current schedule, that the market will grow in line with the trend of the last three years, and that cotton prices will stay within the band seen over that period. These are management's best estimates of what will happen. The bank asks for an auditor's report on it. (a) Is the statement a forecast or a projection? (b) What assurance can the auditor give?

Show the solution

The statement rests on what management expects to happen: the construction schedule, the market trend and cotton prices. These are best-estimate assumptions, so it is a forecast.
The auditor examines the support for each assumption, such as the construction progress records, past growth data and cotton price trends. The auditor also checks the arithmetic and consistency with accounting policies.
On the assumptions, the auditor gives a negative-form statement: nothing has come to the auditor's attention that causes belief that the assumptions do not provide a reasonable basis for the forecast.
On preparation and presentation, the auditor gives a positive opinion that the forecast is properly prepared on the basis of the assumptions and presented in accordance with the relevant framework.
The report adds that actual results are likely to differ.

Answer: It is a forecast, as it uses best-estimate assumptions. The auditor gives a negative-form statement on whether the assumptions give a reasonable basis, a positive opinion on proper preparation and presentation, and a caution that actual results are likely to differ.

Example 2

Case: Kaveri Foods Ltd prepares a statement for a prospective investor showing profit if it wins a large supply contract that it has not yet bid for. The assumptions include winning the contract and a price that has not been negotiated. Management asks the auditor to report on it. Advise the auditor on the assumptions and the report.

Show the solution

Winning the contract is an event that need not happen. The assumption is hypothetical, so the statement is a projection.
The auditor first considers the purpose and users. The statement is for one investor to show a possible outcome, which is a limited-use purpose.
The auditor does not ask whether the contract will be won. The auditor checks that the hypothetical assumptions are consistent with the purpose of the information, and that nothing indicates they are clearly unrealistic.
The auditor also checks the computations, the consistency with the accounting policies and the adequacy of disclosure of the assumptions.
The report gives negative-form assurance that the assumptions are consistent with the purpose of the information, and a positive opinion that the projection is properly prepared on the basis of the assumptions.
The report states that the projection was prepared to show a possible outcome for a particular purpose, so its use for other purposes may not be appropriate. It also states that actual results are likely to differ.

Answer: It is a projection. The auditor tests consistency of the hypothetical assumptions with the purpose, gives negative-form assurance on them and a positive opinion on preparation and presentation, and restricts use to the stated purpose with a caution that actual results are likely to differ.

Exam tips

Start every answer by labelling the PFI as a forecast or a projection. Marks often follow that label.
Write the report wording in full for a 5 or 6 mark question. Include the negative-form assurance, the opinion and the caution.
In case MCQs, look for the assumption type in the facts. Words like if, suppose or what if point to hypothetical assumptions.
Remember the split: negative-form statement on the assumptions, positive opinion on preparation and presentation. Any option claiming the auditor vouches for the results is wrong.
Link modified reports to causes. Unreasonable assumptions or poor disclosure lead to a qualified or adverse opinion. A scope limit leads to qualification or disclaimer.

Practice questions from Prospective Financial Information and Other Assurance Services

Auditor's Assurance on Prospective Financial Information in other exams

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

ACCA Strategic ProfessionalProspective Financial Information (ISAE 3400)

Auditor's Assurance on Prospective Financial Information: frequently asked questions

What level of assurance does the auditor give on prospective financial information?

On the assumptions, the auditor gives a negative-form statement that nothing has come to attention to suggest they lack a reasonable basis. On preparation and presentation, the auditor gives a positive opinion. This is a lower level of assurance than for historical financial information.

What is the difference between a forecast and a projection?

A forecast uses best-estimate assumptions, which management expects to occur. A projection uses hypothetical assumptions, or a mix of hypothetical and best-estimate assumptions. A projection shows a what-if outcome.

Why does the report warn that actual results may differ?

Future events often do not occur as expected, so the actual results can differ from the PFI, sometimes materially. The warning stops users from reading the report as a guarantee.

How does the auditor evaluate assumptions in PFI?

The auditor checks the support for best-estimate assumptions and whether they give a reasonable basis. For hypothetical assumptions, the auditor checks consistency with the purpose of the information. The auditor also tests computations and the consistency with accounting policies.