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

CA Rohan is examining a cash flow projection of Kaveri Infra Ltd. He has tested, on a test basis, the evidence supporting the assumptions. Which form of conclusion on the assumptions should his report contain under SAE 3400?

The report should include a statement of negative assurance on whether the assumptions provide a reasonable basis for the prospective financial information. SAE 3400 allows only a moderate level of assurance on assumptions because the available evidence is future-oriented, so positive assurance is not given.

  1. AA positive assurance that the assumptions are free of material misstatement
  2. BA statement of negative assurance as to whether the assumptions provide a reasonable basis for the prospective financial informationCorrect
  3. CA guarantee that the assumptions will hold during the projection period
  4. DNo statement on assumptions, since they are management's responsibility alone

Explanation

SAE 3400 notes that the evidence available makes positive assurance on assumptions difficult, so the auditor gives only a moderate level of assurance. The report therefore carries a statement of negative assurance on whether the assumptions provide a reasonable basis. Positive assurance is the key distractor and is wrong because the evidence is speculative.

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