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

Zenith Polymers Ltd has asked CA Meera to examine a profit forecast that it will include in an information memorandum. While drafting the report, Meera's junior suggests giving a positive opinion that the forecast results will be achieved, because the management's assumptions are well documented. Which approach is consistent with SAE 3400?

The auditor should give a statement of negative assurance on whether the assumptions provide a reasonable basis, and add caveats about achievability. The auditor cannot say the forecast results will be achieved because supporting evidence about future events is speculative, so only moderate assurance on assumptions is possible.

  1. AExpress an opinion that the results shown in the forecast will be achieved, since the assumptions are documented
  2. BRefuse to report on the assumptions at all, since they relate to future events
  3. CGive a negative assurance on whether the assumptions provide a reasonable basis, and include appropriate caveats on the achievability of the resultsCorrect
  4. DGive a positive assurance that the assumptions are free of material misstatement

Explanation

Evidence for prospective information is itself future-oriented and speculative, so the auditor cannot opine on whether results will be achieved. The report gives a negative assurance on the assumptions and an opinion on proper preparation, with caveats on achievability. Option A is wrong because it states achievability, which the auditor cannot opine on.

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