Standard on Assurance Engagement (SAE) 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus

Introduction

Scope of this SAE

1. This Standard on Assurance Engagements (SAE) deals with reasonable assurance engagements undertaken by a practitioner1 to report on the responsible party’s2 compilation of pro forma financial information included in a prospectus. The SAE applies where:

  • Such reporting is required by securities law or the regulation of the securities exchange (“relevant law or regulation”) in the jurisdiction in which the prospectus is to be issued; or
  • This reporting is generally accepted practice in such jurisdiction. (Ref: A1)

Nature of the Practitioner’s Responsibility

2. In an engagement performed under this SAE, the practitioner has no responsibility to compile the pro forma financial information for the entity; such responsibility rests with the responsible party. The practitioner’s sole responsibility is to report on whether the pro forma financial information has been compiled, in all material respects, by the responsible party on the basis of the applicable criteria.

3. This SAE does not deal with non-assurance engagements in which the practitioner is engaged by the entity to compile its historical financial statements.

Purpose of Pro Forma Financial Information Included in a Prospectus

4. The purpose of pro forma financial information included in a prospectus is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. This is achieved by applying pro forma adjustments to the unadjusted financial information. Pro forma financial information does not represent the entity’s actual financial position, financial performance, or cash flows. (Ref: Para. A2–A3)

Compilation of Pro Forma Financial Information

5. The compilation of pro forma financial information involves the responsible party gathering, classifying, summarizing and presenting financial information that illustrates the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at the selected date. Steps involved in this process include:

  • Identifying the source of the unadjusted financial information to be used in compiling the pro forma financial information, and extracting the unadjusted financial information from that source; (Ref: Para. A4–A5)
  • Making pro forma adjustments to the unadjusted financial information for the purpose for which the pro forma financial information is presented; and
  • Presenting the resulting pro forma financial information with accompanying disclosures.

Nature of Reasonable Assurance Engagement

6. A reasonable assurance engagement to report on the compilation of pro forma financial information involves performing the procedures set out in this SAE to assess whether the applicable criteria used by the responsible party in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether: (Ref: Para. A6)

  • The related pro forma adjustments give appropriate effect to those criteria; and
  • The resulting pro forma column (see paragraph 11(c)) reflects the proper application of those adjustments to the unadjusted financial information.

It also involves evaluating the overall presentation of the pro forma financial information. The engagement, however, does not involve the practitioner updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, or performing an audit or review of the financial information used in compiling the pro forma financial information.

Relationship with Other Professional Pronouncements

7. The performance of assurance engagements other than audits or reviews of historical financial information requires the practitioner to comply with the Framework for Assurance Engagements. The Framework includes requirements in relation to such topics as engagement acceptance, planning, evidence, and documentation that apply to all assurance engagements, including engagements in accordance with this SAE. This SAE expands on how the Framework is to be applied in a reasonable assurance engagement to report on the compilation of pro forma financial information included in a prospectus. The Framework also defines and describes the elements and objectives of an assurance engagement, provides context for understanding this SAE.

8. Compliance with the Framework requires, among other things, that the practitioner:

  • Comply with the independence and other requirements of the Code of Ethics, issued by the Institute of Chartered Accountants of India; and
  • Implement quality control procedures that are applicable to the individual engagement.

Effective Date

9. This SAE is effective for assurance reports dated on or after 01st April 2016.

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