Attestation of Prospective or Provisional Financial statements/ Information – Is it allowed?
(a) Attestation of Prospective Financial Statements /Information?
As per clause (3) of part-I of Second Schedule to the Chartered Accountants Act, 1949, a member in practice will be deemed to be guilty of professional misconduct if he engages in estimation of earnings contingent upon future transaction in a manner which may lead to the belief that he vouches for the accuracy of the forecast.
As per opinion of the Council, a Chartered Accountant can participate in the preparation of profit or financial forecasts and can review them, provided he indicates clearly in his report the sources of information, the basis of forecasts and also the major assumptions made in arriving at the forecasts and so long as he does not vouch for the accuracy of the forecasts. The member has to comply with SAE 3400 while drafting the report for such engagements and has to obtain UDIN for the same. Kindly see Annexure – 1 for Illustrative Format of Compliation Report.
(b) Attestation of Provisional Financial Statements / Compilation of Information?
Standard on Related Services (SRS) 4410 “Compilation Engagements” deals with the concept. Provisional Financial Statements / Compilation of Information may be prepared as per this standard. The purpose of this Standard is to establish standards on professional responsibilities of an accountant when an engagement to compile financial statements or other financial information is undertaken and the form and content of the report to be issued in connection with such a compilation so that the association of the name of the accountant with such financial statements or financial information is not misconstrued by a user of those statements or information as having been audited by him.
The member has to comply with SRS 4410 while preparing Provisional Financial Statements / Compilation of Information and has to obtain UDIN for the same. Kindly see Annexure – 2 for Illustrative Format of Compliation Report.
Please refer to relevant standards SAE 3400, SRS 4410 and ICAI UDIN FAQs for details.
Annexure – 1 : Illustrative Format of Report on Prospective Financial Information –Projections
Report on Examination of Prospective Financial Information
To the …(addressee)………….
We have examined the projection of _____________ (project)__________ (name of the entity) for the period from _______ to ______ as given in ____ to the Prospective Financial Information from page __to ___in accordance with Standard on Assurance Engagement 3400, “The Examination of Prospective Financial Information”, issued by the Institute of Chartered Accountants of India. The preparation and presentation of the projection including the underlying assumptions, set out in note ____ to ______ to the prospective financial information, is the responsibility of the Management and has been approved by the Board of Directors of the company. Our responsibility is to examine the evidence supporting the assumptions (excluding the hypothetical assumption) and other information in the prospective financial information. Our responsibility does not include verification of projections. Therefore, we do not vouch for the accuracy of the same.
This projection has been prepared for _________________ (intended use). The projection has been prepared using a set of assumptions that include hypothetical assumptions about future events and management’s actions that are not necessarily expected to occur. Consequently, users are cautioned that this projection may not be appropriate for purposes other than that described above.
We have carried out our examination of the prospective financial information on a test basis. Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the projection, assuming that ________________ (state or refer to the hypothetical assumptions).
Further, in our opinion the projection is properly prepared on the basis of the assumptions as set out in Note _____ to the Prospective Financial Information and on a consistent basis with the historical financial statements, using appropriate accounting principles. Even if the events anticipated under the hypothetical assumptions described above occur, actual results are still likely to be different from the projection since other anticipated events frequently do not occur as expected and the variation may be material.
For ABC & Co.,
(Name of the member signing the report)
Annexure – 2 : Illustrative Format of Compilation Report – Provisional
ACCOUNTANT’S COMPILATION REPORT
[To Management of ABC Company]
We have compiled the accompanying financial statements of ABC Company based on information you have provided. These financial statements comprise the Balance Sheet of ABC Company as at March 31, 20XX, the statement of Profit and Loss, and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.
We performed this compilation engagement in accordance with Standard on Related Services 4410 (Revised), Compilation Engagements.
We have applied our expertise in accounting and financial reporting to assist you in the preparation and presentation of these financial statements in accordance with accounting principles generally accepted in India. We have complied with relevant ethical requirements.
These financial statements and the accuracy and completeness of the information used to compile them are your responsibility.
Since a compilation engagement is not an assurance engagement, we are not required to verify the accuracy or completeness of the information you
provided to us to compile these financial statements. Accordingly, we do not express an audit opinion or a review conclusion on whether these financial
statements are prepared in accordance with accounting principles generally accepted in India.
For XYZ and Co.
Firm’s Registration Number
(Name of the Member Signing the Compilation Report)