AAA online classes – By Kashif Kamran-FCCA

Block 4- Lecture 5
Report on prospective financial information
June 17 Q5b

You are reviewing the draft assurance report in relation to the examination of a forecast for Tulip Co. The forecast is included
in a proposal due to be sent to Tulip Co’s lenders as part of an effort to secure a new loan. Audit procedures concluded that there
is no reason to believe that the forecast is unrealistic or that it has not been properly prepared. You are currently reviewing the
draft assurance report, which is provided below:
Independent auditor’s report on the forecast of Tulip Co ??- which forecast – is it profit or cash flow or FS(1)
To the shareholders of Tulip Co??- The addressee of the assurance report on PFI is management (2)
We have examined the forecast information ?? (which one) of Tulip Co contained in the loan proposal in accordance with the
relevant standards on assurance engagements applicable to the examination of prospective financial information (the proper
reference to ISAE 3400 is missing / the applicable standard is a ambiguous statement) . Thyme & Co is not responsible
for the forecast, including the assumptions on which it is based. A management responsibility statement should be
mentioned here that Tulip company is responsible for the forecast prepare and assumptions used
Based on our examination of the evidence supporting the assumptions, we believe that these assumptions provide a
reasonable basis for the forecast. Further, in our opinion the forecast is properly prepared on the basis of the assumptions
and is presented in accordance with IFRS.?? International financial reporting standard ( full form)
Actual results are likely to be different from the forecast since the assumptions on which the forecast is based are unlikely
to be accurate.
Signed by assurance engagement partner, Thyme & Co / date should be mentioned + the location !

Required:
Critically appraise the proposed assurance report extract of Tulip Co.
Note: You are NOT required to re-draft the assurance report. (8 marks)
Q2- Mock exam – Sept 22 ( practice platform)

(c) Using the information in Exhibit 3, discuss the implications for the assurance report, assuming no revisions will be
made to the forecast financial statements. (4 marks)

Exhibit 3

It is now 5 August 20X5 and the engagement procedures have been completed and the assurance report on the forecast
financial statements is due to be issued in the next few days. The manager in charge of the engagement has concluded that
the assumptions over revenue and the profit on disposal of the retail park are too optimistic. The matter has been
discussed with management but they have refused to revise the forecasts as they are concerned the bank would not approve
the loan application based on the assurance provider’s proposed adjustments

Student note: Modified report under ISAE 3400

 One/ or more
o Significant assumptions (unrealistic)= adverse
o Insignificant assumption (unrealistic)= qualified
 One / or more procedures – couldn’t be performed by the auditor because management preclude the auditor from
performing these procedures the auditor will issue a disclaimer of opinion

Construction of points for a 4 marks answer

 Evaluate whether the assumption which are too optimistic are significant ones or not ? – reasonable basis/ argument
to support your conclusion
 Qualified opinion or adverse depending upon the significance of the assumptions / and mention in the basis of the
opinion that which assumption were considered too optimistic.
 Modified review report on the forecast