ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments
Kestrel Ltd is seeking investors and wants its auditor to report on a projection that is based on a hypothetical assumption that it will win a major government contract. The projection is intended for a limited group of investors who will be told the basis. Which is the most appropriate step for the auditor under ISAE 3400 when planning the engagement?
The auditor should first consider the intended use of the information, whether it is for general or limited distribution, and whether the assumptions are best-estimate or hypothetical. Hypothetical assumptions are acceptable in a projection for limited users, but the auditor cannot give assurance that the contract will be won.
- ARefuse the engagement because no assurance can be given on any information that includes hypothetical assumptions
- BAccept it and give an opinion that the contract will be won
- CConsider the intended use of the information, whether it is for general or limited distribution, and the nature of the assumptions, before accepting the engagementCorrect
- DAccept without considering use, because the engagement terms are set entirely by the client
Explanation
ISAE 3400 requires the practitioner to consider the intended use, whether distribution is general or limited, the nature of the assumptions (best-estimate or hypothetical), the elements to be included and the period covered. Hypothetical assumptions are permitted for limited use projections. The auditor cannot opine on whether the contract will be won, so the other options are wrong.
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