Page 209 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

11 PROSPECTIVE FINANCIAL INFORMATION AND
OTHER ASSURANCE SERVICES

Case Study-- XP Limited
Expansion: XP Limited, a paint manufacturing company, plans to establish a food processing plant in NOIDA,
encouraged by the state government's investor-friendly policies.
Feasibility: Chirag, a senior finance executive, is tasked with preparing a detailed feasibility study for the project,
including land acquisition, plant construction, machinery procurement, turnover targets, profit projections, and
funding sources.
Assurance Report: The company's bankers request an assurance report from a professional accountant on the
information contained in the feasibility study.
Verification: The assurance report will verify whether the prospective financial information is based on
reasonable and consistent assumptions, aligns with past financial statements, and uses appropriate accounting
principles.
Non-financial Matters: Chirag wonders if professional accountants can also provide assurance reports on non-
financial matters to increase user confidence.

SAE 3400 The Examination of Prospective Financial Information

(CNO 3400.020) Introduction
Chartered Accountants' Evolving Role:
- Traditionally attested to past events; now increasingly involved in future projections.
Financial Projections in Modern Finance:
- Institutions like banks and investors require projected financial statements for appraisals.
- Greater trust in statements prepared or reviewed by chartered accountants.
Prospective Financial Statements:
- Future-oriented statements to evaluate financial decisions.
- Example: X Limited's want a 5-year financial forecast for potential equity investors.
Standards on Assurance Engagements
Assurance Engagement Scope:
• An assurance engagement can involve examining subject matters beyond the examination of financial
statements based on "historical financial information”. Such engagements might relate to prospective financial
information or provide assurance on non-financial matters, such as an entity's internal control design and
operation.

Standards on Assurance Engagements:
• Standards on Assurance Engagements outline the responsibilities of professional accountants in assurance
engagements addressing these matters. The level of assurance provided by these Standards on Assurance
Engagements is moderate.

Issued Standards on Assurance Engagements:
• SAE 3400 focuses on The Examination of Prospective Financial Information.
• SAE 3402 pertains to Assurance Reports on Controls at a Service Organisation.
• SAE 3420 deals with Assurance Engagements to Report on the Compilation of Pro Forma Financial
Information Included in a Prospectus.

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