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

CA Rohan examines the projections of Kaveri Infra Ltd for a proposed fundraising. He finds the assumptions reasonable but evidence for them is only forward-looking. Which form of conclusion on the assumptions does SAE 3400 call for in his report?

The report should contain a statement of negative assurance on whether the assumptions provide a reasonable basis for the prospective financial information. Because the evidence is future-oriented, SAE 3400 allows only a moderate level of assurance on the assumptions, not a positive expression that they are free of material misstatement.

  1. AA positive assurance that the assumptions are free of material misstatement
  2. BA statement of negative assurance on whether the assumptions provide a reasonable basis for the projectionsCorrect
  3. CNo conclusion on the assumptions, only an opinion on arithmetical accuracy
  4. DA guarantee that the assumptions will hold good in the forecast period

Explanation

Given the evidence available, the auditor provides only a moderate level of assurance on the reasonableness of management's assumptions. The report therefore contains a statement of negative assurance on whether the assumptions provide a reasonable basis. Positive assurance, as in the first option, is not given because the evidence is not sufficient for that.

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