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

Sunrise Textiles Ltd has asked CA Meera to examine a five-year financial projection that it will give to a lender. The CFO wants the report to say that the auditor guarantees the projected profits will be achieved because the assumptions were examined. What is the correct position under SAE 3400?

The auditor cannot guarantee or opine that projected results will be achieved. Prospective information concerns events that may not occur, and the evidence supporting its assumptions is itself future-oriented and speculative. The auditor can report only on the assumptions and on the preparation and presentation of the information.

  1. AThe auditor can give that guarantee if the assumptions were examined on a test basis
  2. BThe auditor cannot express an opinion on whether the projected results will be achieved, because the evidence is future-oriented and speculativeCorrect
  3. CThe auditor can give that guarantee only when the lender is the sole user of the report
  4. DThe auditor can give that guarantee if management signs a representation letter on the assumptions

Explanation

SAE 3400 says prospective financial information relates to events that have not yet occurred and might not occur. The supporting evidence is itself future-oriented and speculative. The auditor therefore cannot express an opinion on whether the results will be achieved. Restricting users or obtaining a representation letter does not change this limitation.

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