assurance on forecasts

Question 1

factors to consdier before PFI client acceptance

Answer 1

-Intended use of forecast
-contents in the forecast
-period covered by the forecast
-nature of assumptions: best estimate (based on trends) or hypothetical (baseless)
-general or limited distribution
-source of data used in assumptions, FS audited recently? reliable source?

-ethical issues: CDD, contact auditors, why r current auditors not doing it
-client integrity any incentive for overoptimism
-firms competence, time resources
-free dependency

Question 2

assumptions used in forecasts

Answer 2

-evaluate trends
-do assumptions seem optimistic?
-look for missing information

Question 3

procedures for assumptions

Answer 3

-to assess reasonable
-cover what and why
-dont simply write “discuss with management”
-reasonableness can be confirmed through past trends, records, inquiry but need to incorporate planned changes
-third party correspondence
-post year end work where possible

Question 4

critical evaluation of assurance report

Answer 4

-addressee
-does report specify what forecats the assurance relates to??
-period mentioned?
-reference to standards

Question 5

prospective financial information

Answer 5

future info
it means forecasts

used by
bank
investment appraisal reports
prospectus at share issue
going concern review
budgets

Question 6

PFI is reasonable or limited

Answer 6

limited
future
uncertain

Question 7

general procedures

Answer 7

recalculate to verify accuracy

review accounting policies must be same

competence of preparer

past forecasts were they true

review assumptions and see if consistecy with our understanding or not

proper systems and controls followed? supervision?

written rep

• sensitivity analysis, vary the key assumptions, assess impact of these variances on forecast

Question 8

procedures for sales

Answer 8

review assumption for sales growth
compare w past trend and industry info

Question 9

procedure for cost

Answer 9

review breakup of COGS and op exp
verify all heads included

Question 10

procedure for staff costs

Answer 10

review contract w employees to confirm salaries
board approved succession plans

Question 11

cash flow forecast procedure

Answer 11

review opening balance with cash book

Question 12

finance cost procedure

Answer 12

loan agreement
recalculate fc

Question 13

contents of PFI report

Answer 13

T.A.M.A.S.U.L.A.N.D.

T-Title of report

A-Addresee (so we dont remain liable to any other user)

M-Management responsibilties (defined to reduce expectation gap) like preparation, reasonableness of assumptions, minimise fraud and error, ensure legal compliance)

A-Auditor responsibilties= give limited assurance, give opinion on material heads, review based on samples

S-Subject matter (contents and period of forecast)

U-Use of forecast (to restrict liability)

L-liability limitation clause (for future uncertain events) and
Laws applicable (accounting and auditing framework)

A-Assurance statement (limited assurance, based on our review nothing came to our attention that led us to believe forecast data is materially misstated)

N–name of partner and signature, address

D-date of report signing, to exclude liability for events after that