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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments

Zenith Retail Ltd asks its auditor, Marlow & Co, to examine a cash flow forecast for the next two years that Zenith will give to a bank in support of a loan application. Which statement best describes the practitioner's responsibility under ISAE 3400 The Examination of Prospective Financial Information?

The practitioner reports on whether the assumptions give a reasonable basis for the forecast, whether the forecast is properly prepared on those assumptions, and whether it is presented in line with relevant standards. Management owns the forecast, and no assurance is given that the forecast results will actually be achieved.

  1. ATo guarantee that the forecast results will be achieved
  2. BTo express an opinion on the forecast's accuracy compared with actual future results
  3. CTo prepare the forecast assumptions on behalf of management
  4. DTo report on whether the assumptions provide a reasonable basis for the forecast, whether it is properly prepared on those assumptions and whether it is presented in accordance with relevant standardsCorrect

Explanation

Under ISAE 3400 the practitioner gives a conclusion on the reasonableness of the assumptions, the proper preparation of the forecast on those assumptions and its presentation. Management remains responsible for the forecast and its assumptions. The practitioner cannot guarantee that results will be achieved, so the guarantee and accuracy options are wrong.

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