Examination of Prospective Financial Information
“Prospective financial information” means information about future financial performance, future financial position, future cash flows, and future movements in equity based on assumptions about future events and courses of action. Prospective financial information includes prospective financial statements, the notes to the prospective financial statements, and any narrative relating directly to the prospective financial statements.
Philippine Standard on Assurance Engagements (PSAE) 3400 (previously PSA 810), “The Examination of Prospective Financial Information” establishes standards and provides guidance on engagements to ...view middle of the document...
Approach and Assurance Regarding Prospective Financial Information
In an engagement to examine prospective financial information, the auditor should obtain sufficient appropriate evidence as to whether:
(a) Management’s best-estimate assumptions on which the prospective financial information is based are not unreasonable and, in the case of hypothetical assumptions, such assumptions are consistent with the purpose of the information;
(b) The prospective financial information is properly prepared on the basis of the assumptions;
(c) The prospective financial information is properly presented and all material misstatements are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions; and
(d) The prospective financial information is prepared on a consistent basis with financial statements, using appropriate accounting principles.
* The auditor is not in a position to express an opinion as to whether the results shown in the prospective financial information will be achieved.
* When reporting on the reasonableness of management’s assumptions the auditor provides only a moderate level of assurance. However, when in the auditor’s judgment an appropriate level of satisfaction is obtained, the auditor is not precluded from expressing positive assurance regarding the assumptions.
Knowledge of the Business
* The auditor should obtain a sufficient level of knowledge of the business to be able to evaluate whether all significant assumptions required for the preparation of the prospective financial information have been identified.
* The auditor should consider the extent to which reliance on the entity’s historical financial information is justified.
The auditor should consider the period of time covered by the prospective financial information. The following are some factors that are relevant to the auditor’s consideration of the period of time covered by the prospective financial information:
* Operating cycle
* The degree of reliability of assumptions
* The needs of users
Examination of Procedures
When determining the nature, timing and extent of examination procedures, the auditor’s considerations should include:
(a) The likelihood of material misstatement;
(b) The knowledge obtained during any previous engagements;
(c) Management’s competence regarding the preparation of prospective financial information;
(d) The extent to which the prospective financial information is affected by the management’s judgment; and
(e) The adequacy and reliability of the underlying data.
The auditor should obtain written representations from management regarding the intended use of the prospective financial information, the completeness of significant management assumptions and management’s acceptance of its responsibility for the prospective financial information.
Presentation and Disclosure
When assessing the...