## Prospective Financial Information: Differences and Assurance

### Historical vs Prospective Financial Information

Dimension	Historical Financial Information	Prospective Financial Information
Time orientation	Past — events that have already occurred	Future — based on assumptions about future events
Nature of evidence	Evidence about past transactions exists	Evidence is itself future-oriented — less verifiable
Certainty	Higher certainty (events happened)	Inherently uncertain (future is unknown)
Example	Audited financial statements for FY 2024	Projected P&L for FY 2026 for investor presentations

### What Does the Practitioner Do for Prospective Financial Information?

The practitioner:

1. Obtains evidence that management's assumptions are not unreasonable.

2. Verifies that the prospective financial information is properly prepared on the basis of stated assumptions.

3. Checks that it is properly presented and all material assumptions are adequately disclosed.

### Why Only Moderate Assurance?

Because:

The evidence available (future-oriented assumptions) is less reliable than evidence about past events.
The auditor cannot opine on whether the projected results will actually be achieved.
The best the practitioner can say is: 'Nothing has come to our attention to suggest that these assumptions do not provide a reasonable basis for the projection.'

> Level of Assurance: Moderate (Negative Assurance) — not reasonable/high assurance.

### Memory Hook

> Historical = Past = Reasonable Assurance possible

> Prospective = Future = Only Moderate Assurance (negative form)

Worked example

### Example 1

XYZ Ltd. is expanding into new markets and preparing projected financial statements to present to investors and banks. They engage an audit firm to provide assurance on this prospective financial information.

Key distinctions:

XYZ's historical FY2025 statements cover past revenue/costs (already happened) → reasonable assurance audit.
XYZ's FY2027 projections are based on assumed market growth, new store performance, and product demand → future-oriented assumptions.

The auditors review the assumptions (e.g., 15% revenue growth in new markets) and assess whether they are 'not unreasonable' given industry data and management plans.

Assurance provided: Moderate level — the auditors can state that nothing came to their attention suggesting the assumptions don't provide a reasonable basis for the projection. They cannot guarantee the projected results will be achieved.

⚠️ Common exam mistakes

Stating that prospective financial information gets 'no assurance' — it gets moderate (negative) assurance, which is a meaningful level of assurance.
Confusing 'assumptions are not unreasonable' with 'results will be achieved' — the practitioner only assures the former, never the latter.
Applying the same assurance framework as a historical audit to prospective information — the nature of evidence is fundamentally different.
Forgetting that all material assumptions must be adequately disclosed in the prospective financial information — non-disclosure is itself an issue the practitioner examines.

Reference:

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Prospective Financial Information vs Historical Financial Information – Assurance Level

Worked example

⚠️ Common exam mistakes