Page 434 - CA Final PARAM Digital Book.

Part IV – Conclusion
➢ Thus, Mr. Z will not be held guilty of misconduct if all the requirements have been complied
with or vice versa.
Author’s Note
Refer note after QNO – 743.000

QNO Second Schedule, Part I, Cl,3 --Financial Forecast (Certified) Old Course-- (M05E, M17E, N18M)
741.000 TITANIUM CNO – PE.1500
L, a chartered accountant prepares and certifies projected financial statements of his client Abacus
Ltd. Abacus Ltd. forwarded the same to their banks to secure some loans and bank, on that basis
sanctioned a loan.
OR
Lily, a chartered accountant prepares and certifies projected financial statements of his client
Amazon Ltd. Amazon Ltd. forwarded the same to their banks to secure some loans and bank, on that
basis sanctioned a loan
Answer Part I -- Relevant Standards & Laws
▪ Clause (3) of Part I of the Second Schedule to the Chartered Accountants Act, 1949

▪ SAE 3400 “The Examination of Prospective Financial Information”
Part II -- Requirements of Relevant Standards & Laws
➢ Clause (3) of Part I of the Second Schedule
Under Clause (3) of Part I of Second Schedule to the Chartered Accountants Act, 1949, a chartered
accountant in practice is deemed to be guilty of professional misconduct, if he permits his name or
the name of his firm to be used in connection with an estimate of earnings contingent upon future
transactions in a manner which may lead to the belief that he vouches for the accuracy of the
forecast.
➢ SAE 3400 “The Examination of Prospective Financial Information”
Further, SAE 3400 “The Examination of Prospective Financial Information”, provides that the
management is responsible for the preparation and presentation of the prospective financial
information, including the identification and disclosure of the sources of information, the basis of
forecasts and the underlying assumptions. The auditor may be asked to examine and report on the
prospective financial information to enhance its credibility, whether it is intended for use by third
parties or for internal purposes. Thus, while making report on projection, the auditor needs to
mention that his responsibility is to examine the evidence supporting the assumptions and other
information in the prospective financial information, his responsibility does not include verification
of the accuracy of the projections, therefore, he does not vouch for the accuracy of the same.
Part III – Case Discussion
➢ In the instant case, Mr. L, a chartered accountant, has prepared and certified a projected financial
forecast of his client Abacus Ltd. which was forwarded to the client’s bank to secure some loans
and based on which the bank sanctioned a loan to the client is not in order.
Part IV – Conclusion
➢ Thus, Mr. L will be held guilty of misconduct in view of above
Author’s Note

Refer note after QNO – 743.000

QNO Second Schedule, Part I, Cl 3 --Financial Forecast (Does Not Vouch) Old Course-- (M14E, N16M, PM17)
742.000 TITANIUM CNO – PE.1500
Mr. 'E', a practicing Chartered Accountant, was requested by one of his clients to prepare a projection
for next five years and also a report on the same. Mr. 'E' after having prepared the same stated in his

report ‘The sources of information, the basis of forecasts and also the major assumptions made
in arriving at the forecasts. He also stated that he does not vouch for the accuracy of the forecasts.
Answer Part I -- Relevant Standards & Laws
▪ Clause (3) of Part I of the Second Schedule to the Chartered Accountants Act, 1949

Part II -- Requirements of Relevant Standards & Laws
➢ A chartered accountant in practice is deemed to be guilty of professional misconduct if he permits
his name or the name of his firm to be used in connection with an estimate of earnings contingent
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