Page 435 - CA Final PARAM Digital Book.

upon future transactions in a manner which may lead to the belief that he vouches for the
accuracy of the forecast.

Accuracy does not refer to arithmetical accuracy. All forecasts are estimates based on certain
assumptions duly evaluated on a consideration of various relevant factors and cannot be
ascertained with accuracy. The Guidance Note on Accountants Report on Profit Forecasts and/or
Financial forecast considered the implications of this clause and made it clear that the chartered
accountant can participate in the preparation of profit or financial forecasts and review them. But,
first of all, he should clearly indicate in his report the sources of information, the basis of forecasts
and also the major assumptions made in arriving at the forecasts and, secondly, he should not
vouch for the accuracy of the forecasts.
Part III – Case Discussion
➢ In the instant case, Mr. E after having prepared the projections for next five years 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.
Part IV – Conclusion
➢ Therefore, there is no violation of the Chartered Accountants Act, 1949 and its Regulations.
Author’s Note

• Institute has given answer as per old guidance note, in which preparation and examination both
were allowed by a chartered accountant, but after SA 3400 the situation has changed. As per SA
3400 a chartered accountant cannot do 2 things together i.e. preparation and examination, so
answer of this particular question should be modified that , preparing and examining both is not
allowed as on today as per SA 3400 ,hence guilty of misconduct
• Also refer note after QNO – 743.000
Standards &
QNO Second Schedule, Part I, Cl,3 --Financial Forecast (Offered) Old Course-- (M08E, M16R, PM17, SM17)
743.000 TITANIUM CNO – PE.1500
As a Chartered Accountant in practice, you are asked to conduct a review of the "Profit Forecast"

prepared by a Company in connection with its application for a Term loans from a bank
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 Second Schedule to The Chartered Accountants Act, 1949
A CA 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, as a chartered accountant in practice, we are asked to conduct a review of
“profit forecast” prepared by a company in connection with its application for a term loan
from a bank.
Part IV – Conclusion
➢ Hence, the offer can be accepted if the above requirements are complied with.

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