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

CA Rohan is examining a forecast prepared by Kaveri Agro Ltd. In the report, he wants to state a conclusion on management's assumptions. Which conclusion is consistent with SAE 3400?

The auditor gives a statement of negative assurance on whether the assumptions provide a reasonable basis for the forecast. Evidence on assumptions is future-oriented, so SAE 3400 allows only a moderate level of assurance, not a positive opinion that the assumptions are free of material misstatement.

  1. AA positive opinion that the assumptions are free from material misstatement
  2. BA statement of negative assurance as to whether the assumptions provide a reasonable basis for the forecastCorrect
  3. CA disclaimer on the assumptions, with an opinion only on the arithmetic
  4. DA reasonable assurance conclusion that the assumptions are accurate

Explanation

Given the types of evidence available for assumptions, it may be difficult to obtain satisfaction sufficient for a positive expression. SAE 3400 therefore provides only a moderate level of assurance on the reasonableness of assumptions. The report states this as negative assurance on whether the assumptions provide a reasonable basis. A positive opinion is the distractor that overstates the assurance.

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