- This topic has 1 reply, 2 voices, and was last updated 6 years ago by MikeLittle.
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- April 12, 2018 at 1:58 pm #446378
Hi again sir. I just did a question called lapwing and it asked for procedures to be performed on a forecasted set of FS.
The qn is because it is a review of forecast there will be very little evidence to prove the figures right? So is it that we have to suggest procedures that are discuss this issue that issue… i mean isnt it silly to just say discuss discuss?
Coz i didnt find any other procedures relevant other than recalculation and discussing!April 12, 2018 at 2:33 pm #446385Ascertain bases upon which forecasts for (for example) revenues and expenses are based
Assess reasonableness of any assumptions made by the client in arriving at those bases
Consider the way in which the predicted figures fit into the trend established over the previous (say) 4 years and …
… enquire as to the reasons that underpin the excessive movements of the predictions away from those established trends
Confirm that the accounting treatment is consistent with prior years – for example:
– the treatment of research and (particularly) development expenditure
– the profit recognition criteria on long-term construction activities
– the assessment of probabilities for the treatment of contingencies and provisions
– the recognition of the certainty of qualification for government grantsApply analytical procedures to reach an opinion as to the achievability of the forecast results
Apply sensitivity procedures to establish the degree of movement in (say) forecast interest rates before the predicted results change materially
Consider the reason for the preparation of these forecast figures and the consequential risk of bias in their preparation
Consider the identity, integrity, reliability, trust-worthiness and qualifications of the preparer and that person’s track record of “success” in previous forecasts
As always, how many marks was this sub-question worth?
Do I need to go any further? (I haven’t mentioned “discuss” once, yet!)
HINT! You need to let your imagination fly free – transport yourself mentally into a face-to-face confrontation with a client’s senior personnel, put on your cynic’s hat, and start grilling them.
Remember, these forecast figures will not have been shown to you until they have been manipulated to show the results necessary for their purpose … they’re no good for showing to a bank when asking for loan facilities when the figures are predicting a loss situation where the viability of loan interest payments appears to be in doubt
You are only going to see these forecasts in their final form and that means that they will show the results that management wants them to show
OK?
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