ED Motors Ltd., a leading manufacturer of high-performance electric bikes, is planning to expand its operations globally. In order to obtain a…

CA Final · Advanced Auditing, Assurance and Professional Ethics · PYQS · May 2026
ED Motors Ltd., a leading manufacturer of high-performance electric bikes, is planning to expand its operations globally. In order to obtain a long-term loan working capital funding of 450 crores from a consortium of banks, the company has prepared Prospective Financial Information (PFI) covering the next three years. CA Madhu, who has been the statutory auditor of the company for the past four years, has been appointed to examine and report on the PFI prepared by the management. During her preliminary discussions, CA Madhu noted the following matters: (i) The management is completely new to the complexities involved in international marketing projections. (ii) The financial projections are significantly dependent on hypothetical assumptions that the company will achieve a 20% market share in Europe, within the first year. This assumption would require productions levels exceeding the current installed capacity of their domestic manufacturing facility. (iii) Management has relied on a combination of internal budgetary data and external reports from independent industry analysts to justify their growth projections. On the basis of above information determine the nature, timing and extent of examination procedures that CA Madhu would perform on the Prospective Financial Information in accordance with applicable Standard on Assurance Engagements.

Suggested Answer and Working Notes:

As per SAE 3400 “The Examination of Prospective Financial Information”, when determining the nature, timing and extent of examination procedures, the following matters should be considered by CA Madhu: the knowledge obtained during any previous engagements;management's competence regarding the preparation of prospective financial information;the likelihood of material misstatement;the extent to which the prospective financial information is affected by the management's judgment;the sources of information considered by the management for the purpose, their adequacy, reliability of the underlying data, including data derived from third parties, such as industry statistics, to support the assumptions;the stability of entity's business; andthe engagement team's experience with the business and the industry in which the entity operates and with reporting on prospective financial information.

Topics: Standard on Auditing (SA)

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