Skip to content

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

Sundaram Textiles Ltd. has engaged CA Meera to examine a profit forecast that it will include in an information memorandum. Management has asked her to give a report stating that the forecast profit of Rs 12 crore will definitely be achieved. Under SAE 3400, what is the appropriate response of CA Meera?

She should decline to state that the forecast will definitely be achieved. Under SAE 3400 the evidence for prospective information is future-oriented and speculative, so the auditor cannot express an opinion on whether the projected results will be achieved. Management representations do not remove this limitation.

  1. AAgree, provided she obtains a management representation letter confirming the assumptions
  2. BDecline to express an opinion that the results will be achieved, because she cannot opine on whether the forecast results will be achievedCorrect
  3. CAgree, if she gets positive assurance on every assumption
  4. DReport that the results will be achieved only if the forecast period is under 12 months

Explanation

SAE 3400 states that prospective financial information relates to events that have not yet occurred and might not occur, and the supporting evidence is itself future-oriented and speculative. The auditor is therefore not in a position to express an opinion on whether the results will be achieved. A representation letter or a short forecast period does not change this, and positive assurance on assumptions is also not normally obtainable.

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