Skip to content

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

Shreya & Co., Chartered Accountants, are engaged by Kaveri Textiles Ltd to examine a cash flow forecast that will be given to a bank. The management asks that the report state that the assumptions are 'free from material misstatement' and that the forecast cash flows 'will be achieved'. Under SAE 3400, what should the firm do?

The firm should give negative assurance on whether the assumptions provide a reasonable basis for the forecast and include caveats on achievability. Evidence for assumptions is future-oriented, so only moderate assurance is possible, and the auditor cannot opine that the results will be achieved.

  1. AGive positive assurance on the assumptions but only caveat the achievability of results
  2. BReport with negative assurance on whether the assumptions provide a reasonable basis, and include caveats that the results may not be achievedCorrect
  3. CGive positive assurance on both assumptions and achievability because the bank is a restricted user
  4. DRefuse to report because assurance on assumptions is never permitted under SAE 3400

Explanation

SAE 3400 says evidence on assumptions is future-oriented and speculative, so the auditor gives only a moderate level of assurance, expressed as negative assurance on the assumptions. The auditor cannot express an opinion that the results will be achieved. Option A is wrong because positive assurance on the assumptions is not given.

Did you get it right without looking?

One question tells you little. A timed set on Prospective Financial Information and Other Assurance Services shows your real accuracy, how long you take and where you lose marks.

Practise Prospective Financial Information and Other Assurance ServicesFree diagnostic mock

More Prospective Financial Information and Other Assurance Services questions