ICAI gives CAs escape clause on company forecast for loans

New Delhi, Oct 29 (UNI) Chartered Accountants (CA) who lend their name to economic projections made by companies seeking term loans have been given an escape clause by their governing body, the Institute of Chartered Accountants of India (ICAI).

Worldover, business corporates submit forecasts to banks and financial institutions who, in turn, handover the reports to CAs to scrutinise and verify the details.

In India, too, banks give term loans on the basis of reports and projections submitted by companies which have been authenticated by the chartered accountant.

Now, ICAI has decided to give the go-ahead to its members provided the basis of projections is not "unreasonable".

The Council of the ICAI at its recent meeting held in mid-October approved the auditing and assurance standard (AAS 35) "The Examination of Prospective Financial Information".

Under this, prospective financial information normally submitted by commercial enterprises in their start-up phase or at the time of effecting a major change in the nature or scale of operations when seeking a bank loans from will now hinge on the "reasonableness" of the assumptions.

"The information being highly subjective in nature and its preparation requires exercise of considerable judgment by the management," says ICAI President T N Manoharan.

The disclaimer issued of the assurance not appearing "to be unreasonable" is expected to clinch the deal henceforth.

Lack of tangible back-up to verify the management's claims and assumptions have forced the approving authorities as well as the firms to hire CAs to examine the financial information and issue a report on the "reasonableness" of the estimates and assumptions followed in the preparation of the prospective financial information, the ICAI President notes.

The new standard on assurance function lays down the examination procedures, reporting formats, both in the case of forecast and projection for the chartered accountants who are assigned such tasks.

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