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

Sundaram Textiles Ltd plans a bank loan and asks CA Meera to examine its five-year cash flow projection under SAE 3400. The CFO wants the report to state that the projected cash flows will be achieved, so the bank will rely on it. What is the correct position for CA Meera?

CA Meera should not state that the results will be achieved. Prospective financial information concerns events that may not occur, and the supporting evidence is itself future-oriented and speculative, so the auditor cannot opine on achievability. The report should instead carry appropriate caveats about whether the results will be achieved.

  1. AShe may state that the projected results will be achieved if the assumptions are supported by documentary evidence
  2. BShe should not express an opinion that the results will be achieved, because evidence for prospective information is future-oriented and speculativeCorrect
  3. CShe may give a positive assurance on the achievability of the results if management gives a written representation
  4. DShe may state that results will be achieved if the projection covers less than one year

Explanation

SAE 3400 says prospective information relates to events that have not yet occurred and might not occur. Evidence supporting it is itself future-oriented and speculative. The auditor therefore cannot opine on whether the results will be achieved. A written representation or a shorter period does not change this, so the other options are wrong.

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