Page 240 - CA Final PARAM Digital Book.

Part 3 SA 3420

QNO Significance of Pro Forma Financial Information New Course – (SM23)
3420.100 TITANIUM CNO -- 3420.020

Discuss the significance of Pro forma financial information included in prospectus of a company

Answer What is Pro forma financial information?
Definition of Pro Forma Financial Information: Pro forma financial information refers to financial
information shown together with adjustments to illustrate the impact of an event or transaction on
unadjusted financial information as if the event had occurred or the transaction had been undertaken at an
earlier date selected for purposes of the illustration.
Usage in Offer Documents: The Pro forma financial information is, normally, used in the offer documents to
demonstrate the effect of a transaction on the financial statements of a company as if those transactions
had occurred at an earlier date.
Pro Forma B/S and P&L: The Pro forma financial information may take the form of Statement of Profit and
Loss and Balance Sheet to illustrate how the transactions might have affected the assets, liabilities and
earnings of the Issuer. They also include notes in relation to the significant aspects of the transactions,
assumptions used to prepare the Pro forma financial information and the adjustments made.
Purpose: The purpose of pro forma financial information included in a prospectus is solely to illustrate the
impact of a significant event or transaction on unadjusted financial information of the entity as if the event
had occurred or the transaction had been undertaken at an earlier date selected for purposes of the
illustration.
Not actual Financial Position or performance: Pro forma financial information does not represent the
entity’s actual financial position, financial performance, or cash flows.

QNO Engagement Acceptance (Agreement of the Responsible Party) New Course – (SM23)
3420.200 TITANIUM CNO -- 3420.100

The management of S Ltd. requests you to accept an engagement to report on the compilation of pro
forma financial information to be included in a prospectus. In light of SAE 3420, what factors you will
consider regarding the company acknowledging and understanding its responsibility in this matter before
accepting engagement?
Answer The company’s responsibility has to be acknowledged for the following matters:-

(i) Adequately disclosing and describing the applicable criteria to the intended users if these are not
publicly available.

(ii) Compiling the pro forma financial information on the basis of the applicable criteria and

(iii) Providing the practitioner with:-

a. Access to all information (including, when needed for purposes of the engagement, information of
the acquiree(s) in a business combination), such as records, documentation and other material,
relevant to evaluating whether the pro forma financial information has been compiled, in all
material respects, on the basis of the applicable criteria

b. Additional information that the practitioner may request from the responsible party for the purpose
of the engagement.

c. Access to those within the entity and the entity’s advisors from whom the practitioner determines
it necessary to obtain evidence relating to evaluating whether the pro forma financial information
has been compiled, in all material respects, on the basis of the applicable criteria; and

d. When needed for purposes of the engagement, access to appropriate individuals within the
acquiree(s) in a business combination.
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