An auditor is engaged to examine the prospective financial statements (financial forecast) of a nonissuer. Which of the following is a requirement for the accountant's report?

Answer options:

A statement that the accountant guarantees the results will be achieved.

A caveat that the prospective results may not be achieved.

An opinion on whether the prospective financial statements are free from material misstatement due to fraud.

A statement that the accountant has verified the mathematical accuracy of the projections to a 99% confidence level.

How to approach this question

Prospective Financials (Forecasts/Projections): Always include a warning (Caveat). 'We don't have a crystal ball.'

Full Answer

B.A caveat that the prospective results may not be achieved.✓ Correct

In an examination of prospective financial statements, the report must include a caveat that the prospective results may not be achieved and that the differences between the prospective and actual results may be material.

Common mistakes

Thinking an examination of a forecast is the same as an audit of history. It's not; it's about the reasonableness of assumptions.

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