Pro Forma Financial Information

Question 1

What is pro forma financial information?

Answer 1

A presentation that shows what the effects on a historical financial information might have been had a proposed transaction taken place

Question 2

What are the two types of attestation standards can be applied to pro forma?

Answer 2

EXAMINATION

REVIEW

NOT AGREED UPON PROCEDURE!!!

Question 3

What are the preconditions?

Answer 3

• Document containing pro forma information must also include historical financial statements
• Cannot express a higher level of assurance than what was expressed on the historical financial statements
• Audit report must be documented as pro forma information
• Obtain an appropriate level of knowledge to perform the procedures
• Request written assertion (if they refuse, you withdrawal)

Question 4

What are the audit procedures?

Answer 4

• Understanding transaction or event
• Obtain understanding of financial reporting practices
• Discuss the effects of the transactions
• Evaluate pro forma adjustments for all significant effects
• Evaluate whether management assumptions are presented appropriately
• Evaluate whether computation of the adjustments are properly applied
• Read pro forma information and evaluate whether the transaction or even are adequately described

Question 5

What additional written representations do the auditor need to obtain?

Answer 5

• Management is responsible
• Assumptions are FACTUALLY supportable
• Assumptions are reasonable
• Statement reflect assumptions
• Amounts reflect adjustments to historical F/S

Question 6

What is the focus for the opinion (examination) or conclusion (review) on a pro forma engagement?

Answer 6

1) Management assumptions provide a reasonable basis for presenting significant effects
2) Pro Forma adjustments give appropriate effects to those assumptions
3) Pro Forma amounts reflect the proper adjustments to the historical F/S amounts