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Q1. How does the business plan and forecast financial statements provide to the bank will help to establish potential liability to 3rd parties and any liability disclaimer necessary?
Q2. Why do auditors need to provide forecast of financial statements of a company to the bank? Is it due to getting approval for the lending of money from the bank? If forecast of financial statements not good, bank may reject lending then will it result the company to have going concern problem?
Hi Kat
I’m, again, sorry! I don’t understand your Q1 🙁
As for Q2, forecasts and projections will typically be required by a bank where the bank is being asked for a) an overdraft facility, b) a loan, c) an extension of an existing credit facility, d) a bank account
Whichever option is applicable, it is in practice highly improbable that a forecast is going to be presented to the bank that does not support the view that the company wishes to show. hence the requirement for an even higher degree of professional skepticism!
As you so correctly point out “If forecast of financial statements not good, bank may reject lending then will it result the company to have going concern problem?” and that’s why the view shown to the bank is unlikely to be a pessimistic one
OK?
Q2. How does business plan report establish the potential liability of a company to third parties and help to determine the need and extent of any liability disclaimer that may be necessary? Is this clearer?
Ok, I’ll try. I presume that, in your most recent post, when you refer to “company” you are referring to the firm of auditors.
It really doesn’t matter whether it’s an audit opinion within an audit report or an assurance given in prospective financial information, an agreed upon procedures involvement or a due diligence report.
Whenever an auditor or accountant is asked to give an opinion upon some financial information, the auditor has to ask “Who is going to be using this information and what loss will they suffer if it’s incorrect?”
So, whenever an auditor / accountant appends their signature to such a report, that raises the possibility of potential liability
Ok?
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