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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Audit-related and assurance services

Kestrel Ltd asks its audit firm to report on a cash flow forecast for the next two years, to be given to a bank considering a loan. Which statement best describes the conclusion the practitioner may give under ISAE 3400 on The Examination of Prospective Financial Information?

The practitioner gives negative assurance on whether the assumptions provide a reasonable basis for the forecast. No assurance is given that the forecast results will actually be achieved, because the future is uncertain and actual outcomes usually differ from those expected.

  1. AReasonable assurance that the forecast will be achieved
  2. BNegative assurance on whether the assumptions provide a reasonable basis for the forecast, with no assurance that the results will be achievedCorrect
  3. CA guarantee that actual results will match the forecast
  4. DAn opinion that the historical financial statements are free from material misstatement

Explanation

Under ISAE 3400 the practitioner gives a statement of negative assurance about whether the assumptions provide a reasonable basis for the prospective financial information. The practitioner cannot give assurance that the results will be achieved, because future events may differ from expectations. The other options claim assurance on achievement or concern historical information.

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