Sky Infrastructure Pvt. Ltd. is bidding for a long-term government project involving construction of smart highways. As part of the bidding…
CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · November 2026
Sky Infrastructure Pvt. Ltd. is bidding for a long-term government project involving construction of smart highways. As part of the bidding documents, the company is required to present Prospective Financial Information (PFI) for the next five years to demonstrate its financial viability. CA Jigar has been engaged to examine the Prospective Financial Information. While examining the PFI, CA Jigar observes that the Management has assumed zero increase in construction material costs over five years, even though industry reports predict a steady 6-8% annual increase due to inflation. Further, the company has based its revenue projections on the assumption that it will win two additional large contracts, even though bids are yet to be submitted. Elaborate on the duties of CA Jigar while examining the Prospective Financial Information.
Suggested Answer and Working Notes:
As per SAE 3400 “The Examination of Prospective Financial Information", in an engagement to examine prospective financial information, CA Jigar, the auditor should obtain sufficient appropriate evidence as to whether: (i) management's best-estimate assumptions on which the prospective financial information is based are not unreasonable and, in the case of hypothetical assumptions, such assumptions are consistent with the purpose of the information; (ii) the prospective financial information is properly prepared on the basis of the assumptions; (iii) the prospective financial information is properly presented and all material assumptions are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions; and (iv) the prospective financial information is prepared on a consistent basis with historical financial statements, using appropriate accounting principles. While examining prospective financial information, principles laid down in other Standards on Auditing should be applied to the extent practicable.
Topics: Standard on Auditing (SA)
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