ACCA P7

ADVANCED AUDIT & ASSURANCE (INT)

Prospective financial information

ISAE 3400- PFI

A reporting accountant may be asked to provide an opinion on prospective (future) information in the form of a forecast and / or projection (ISAE 3400 is the authoritative standard in this area).

Isae 3400 - PFI

P.F.I financial information based on assumptions about events that may occur in the future and possible actions by the entity.

Isae 3400 - PFI

Forecast PFI based on management expectation Best estimate assumption.

ISAE 3400- PFI

Projection PFI based on hypothetical assumptions about future events that may or may not take place or based on a combination of best-estimate and hypothetical assumptions.

PFI engagement
Prior to acceptance of a PFI engagement , the auditor must consider : 1) the intended users 2) whether the information will be for general or limited distribution 3) the nature of assumptions : best estimate or hypothetical ? 4) elements to be included and period covered.

Typical assurance procedures

Agree letter of engagement and form of opinion Negative assurance . Management responsibility for preparation of forecast , restriction on distribution . Have all cost implications been accounted for in the use of hypothetical assumptions ( e.g staff required, prospective capacity)? Obtain management representation on the intended use of the PFI , mgmt responsibility for the preparation of PFI , and the completeness of significant assumptions.

Typical assurance procedures

Obtain sufficient knowledge of business (ISA 310)

Assess source and reliability of management s best-estimate assumptions. Are they reliable and realistic ? Are forecasts and supporting schedules arithmetically correct ? Are the consistent with mgmt s plan ? How do they compare to results to date?

PFI
Definitions
P.F.I

financial information based on assumptions about future events.

Forecast period not exceeding 1 year. Projection - period 2- 5 years. Hypothetical illustration - Depiction of anticipated outcome. Target - Desired future outcome.

P.F.I- Principles
Users Internal and External Presentation Useful, state assumptions , mixture of formats Preparation- make assumptions, define accounting policies , prepare PFI, Issue PFI.

PFI- examination procedures

General check arithmetical accuracy Specific compare anticipated revenues with trends.

PFI matters to consider

Before acceptance - what s the risk? Level of assurance - impossible to verify future events . Can only comment on reasonableness of assumptions. Nature , extent, timing of procedures.

PFI - report
Report content Compare with audit report.