Clause 3 – Part I – Second Schedule Flashcards
As a CA in practice, Mr. D is offered to conduct a review of the “Profit Forecast” prepared by a company in connection with its application for a term loan from a financial institution.
Certification of Financial Forecast:
Provision:
Under 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 manner which may lead to the belief that he vouches for the accuracy of the forecast.
–> 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 need 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.
Conclusion:
Hence, Mr. D may accept the offer if the above requirements are complied with.
