Chapters 14 & 16
Prospective Financial Information & Forensic Audits
Prospective Financial Information (PFI)
Governed by ISAE 3400 – Examination of prospective financial information
Prepared on best-estimate assumptions – what management expects to happen. More verifiable, lower risk.
Prepared on hypothetical assumptions – "what if" scenarios. Less evidence, higher risk.
Forecasts = expected → easier to verify
Projections = hypothetical → harder to verify
- Intended use – Internal or external users
- Distribution – General (high risk) vs limited
- Nature of assumptions – Best-estimate vs hypothetical
- Period covered – Longer = more uncertainty
- Management competence – Track record
Only limited (moderate) assurance can be offered for PFI engagements.
Conclusion expressed negatively: "Nothing has come to our attention to suggest..."
- Compare forecast to historical performance
- Compare to actual results for elapsed periods
- Inspect supporting documentation
- Enquire of management about assumptions
- Recalculate arithmetic accuracy
- Obtain written representations
Forensic Audits
Forensic accounting – specialist branch for fraud investigation
Procedures within a forensic investigation to obtain evidence to quantify a loss. The objective is to put the claimant into the position they would have been in if the event had not occurred.
- Fraud investigations – Theft, tax evasion, insider dealing
- Insurance claims – Business interruption, property losses
- Professional negligence – Loss from relying on adviser
Forensic engagements are "agreed upon procedures" – NO assurance, just factual findings.
Contrast with PFI (limited) and audit (reasonable).