Page 237 - CA Final PARAM Digital Book.

Part 1- SA 3400

QNO Consistency with Historical Statements New Course – (SM23)
3400.100 TITANIUM CNO -- 3400.040

A company has approached CA. Hemant for an assurance report in respect of prospective financial
information of a project. On going through the project details, it is noticed that depreciation reflected on
proposed fixed assets to be acquired in prospective financial information has been calculated in
accordance with provisions of the Income Tax Act. No disclosure is made in this respect too. How the
matter should be proceeded with?
Answer In such types of engagements, it is the duty of a professional accountant to see that prospective financial
information is based on a consistent basis with historical financial statements using appropriate accounting
principles.

In the case of a company, historical financial statements are prepared considering the requirements of the
Companies Act, and depreciation is calculated accordingly. However, in the given situation, depreciation has
been calculated in accordance with Income Tax Act which is not consistent with historical financial
statements. Therefore, it is not proper.
The fact that the projection has not been prepared on a consistent basis with the historical financial
statements, using appropriate accounting principles needs to be stated.

Further, when presentation and disclosure are not adequate, a qualified or adverse opinion should be given
or withdrawal from engagement should be made as appropriate.

QNO Reporting on Prospective Financial Statements as Per CA Act New Course – (SM23)
3400.200 TITANIUM CNO -- 3400.040

Discuss, how, a Chartered Accountant can be associated with prospective financial information without
violating relevant provisions of the Chartered Accountants Act, 1949
Answer Clause 3 of Part I of Second Schedule Prescribes Following-
A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he.
Clause (3): Permits his name or the name of his firm to be used in connection with an estimate of earnings
contingent upon future transactions in manner which may lead to the belief that he vouches for the accuracy
of the forecast.

So, reporting can be done, just don't vouch accuracy of the forecast.

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