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

CA Rao is engaged to examine a forecast prepared by Sundaram Pharma Ltd. While drafting the report, he concludes that the assumptions are supported by evidence that is itself forward-looking. Which statement about the level of assurance he gives on management's assumptions is correct under SAE 3400?

He gives only a moderate level of assurance on the assumptions, expressed as negative assurance on whether they provide a reasonable basis for the forecast. Evidence supporting assumptions is future-oriented, so a positive opinion that assumptions are free of material misstatement is difficult to support.

  1. AHe gives a moderate level of assurance, expressed as negative assurance on whether the assumptions provide a reasonable basis for the forecastCorrect
  2. BHe gives a positive opinion that the assumptions are free of material misstatement
  3. CHe gives absolute assurance, since the forecast is based on audited historical results
  4. DHe gives no assurance on assumptions and reports only on arithmetical accuracy

Explanation

Given the types of evidence available, it may be difficult to reach a level of satisfaction sufficient for a positive expression that assumptions are free of material misstatement. SAE 3400 therefore provides only a moderate level of assurance on reasonableness of assumptions. The report contains a statement of negative assurance on whether they provide a reasonable basis. A positive opinion is thus wrong.

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