Future Oriented Financial Information (“FOFI”)

Recession, no recession? We will see.  What we have seen is the tightening of credit throughout the lending market. Covenants that haven’t been enforced in years, are being follow up on and due on demand triggers features are being triggered.  You know that I cannot let the opportunity pass to note that this is why presenting debt as current and disclosing covenant violations in accordance with the lending terms is important even when the client and the bank manager assure you nothing will change.  Our responsibility is to assess compliance whether the lender is enforcing their own covenants and ensure disclosure is adequate.

What I haven’t seen in a very long time, perhaps even more than 15 years, are formal requests for forecasts.  Where many practitioners assist clients with these excel forecasts, in a management advisory role, it appears now that you can expect a request to attach your letterhead.  Why might this be? I’m sure we can all guess.  Nothing better than establishing a duty of care with a well insured CPA firm, just in case. Lenders might even convince you to come to a meeting and provide some additional assurances around these rosy projections. 

Are we concerned?  Absolutely not.  But we ‘dusted-off’ our FOFI template and resources and refreshed our memory as to the relevant standards.

So even though, the Accounting Standards Board (AcSB) removed Part V from the CPA Handbook – Accounting, which included Handbook Section 4250, the guidance for the preparation of FOFI in 2020. The AcSB has retained the content from Section 4250 as non-authoritative guidance for future-oriented financial information in the CPA Canada Standards and Guidance Collection. With the relevant accounting guidance now moved non-authoritative status you might assume the same of the Assurance guidance.  However, that is not the case.  No change has been made to AuG-16 – Compilation of a Financial Forecast or Projection (“AuG-16”).

Compliance with AuG-16 is not difficult to meet and includes what you might expect from an engagement letter, documentation requirements around procedures performance, representation letter and issuance of a report. 

We have created a CaseWare template to help meet the documentation and reporting requirements, as well as minimize your administrative time.  The template includes:

  • Draft engagement letter
  • Working papers to assist in the documentation of your understanding of the entity and its environment and the assumptions used in the forecast
  • Draft management representation letter
  • Draft Notice to Reader

Purchase the AuG-16 Caseware Template now.

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