Pro forma financial information and assurance engagement to report on compilation of pro forma financial information

 

Pro forma financial information is financial information shown together with adjustments to illustrate the impact of an event or transaction on unadjusted financial information as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration.   Examples of such an event or transaction may be:

·        Acquisition constituting a major transaction.

·        Very substantial disposal.

·        Issuance of new shares by means of  rights issue and open offers.

 It is presumed that pro forma financial information is presented in columnar format consisting of

a) the unadjusted financial information.

b) the pro forma adjustments; and

(c) the resulting pro forma column.

Pro forma adjustments may include:

·        Adjustments to unadjusted financial information that illustrate the impact of a significant event or transaction.

·    Adjustments to unadjusted financial information that are necessary for the pro forma financial information to be compiled to be compiled on a basis consistent with the applicable financial reporting framework of the reporting entity.

Different presentations of pro forma financial information may be included in the prospectus depending on the nature of the event or transaction and how the responsible party intends to illustrate the impact of such event or transaction on the unadjusted financial information of the entity.

Below is presented an example of pro forma statement of profit and loss.


Compilation of pro forma financial information

The compilation of pro forma financial information involves the responsible party gathering, classifying, summarizing, and presenting financial information that illustrates the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at the selected date.

The process of compilation of pro forma financial information may include the following steps:

·  Identifying the source of the unadjusted financial information to be used in compiling the pro forma financial information and extracting the financial information from that source. In many cases, the source from which the unadjusted financial information has been extracted will be published financial information such as annual or interim financial statements.

·   Making pro forma adjustments to the unadjusted financial information for the purpose for which the pro forma financial information is presented; and

·    Presenting the resulting pro forma financial information with accompanying disclosures.

Assurance engagement to report on compilation of pro forma financial information.

Assurance engagement to report on compilation of pro forma financial information is reasonable assurance attestation engagements undertaken by a practitioner to report on the responsible party’s compilation of pro forma financial information included in a prospectus.

Such reporting is required:

·      By securities law or the regulation of the securities exchange (“relevant law or regulation”) in the jurisdiction in which the prospectus is to be issued; or

·        This reporting is generally accepted practice in such a jurisdiction.

A reasonable assurance engagement to report on the compilation of pro forma financial information is intended to:

a)      assess whether the applicable criteria used by the responsible party in the compilation of the pro forma financial information provide a reasonable basis for presenting the event or transaction and

b)      obtain sufficient appropriate evidence about whether:

·        The related pro forma adjustments give appropriate effect to those criteria; and

·    The resulting pro forma column reflects the proper application of those adjustments to the unadjusted financial information.

Steps to perform assurance engagement to report on compilation of pro forma financial information

Performing assurance engagement to report on compilation of pro forma financial information may involve the following steps:

·    Obtaining an understanding of how the responsible party has compiled the pro forma financial information and other engagement circumstances.

·    Obtaining evidence about the appropriateness of the source from which the unadjusted financial information has been extracted.

·        Obtaining evidence about the appropriateness of the pro forma adjustments.

·        Obtaining evidence about the calculations within the pro forma financial information.

·        Evaluating the presentation of the pro forma financial information.

·        Obtaining written representations from the responsible party.

·        Forming the opinion and preparing the assurance report.


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