QUESTION ONE

You are the partner in charge of the audit of futuristic components Ltd, a private company which intends to seek a public quotations for its share. The company is required to prepare a prospectus which must incorporate a report by the auditors of the company. The directors intend to include a profit in the prospectus and you, as the company auditor, will therefore be required by the stock exchange to report on the base and calculator for the forecast.

Required:

1. What are the preliminary considerations to be borne in mind before you should accept responsibility for reporting on the profit forecast? [6 marks]

1. In your staff briefing as to the method of approach to be adopted in the profit forecast review, list SIX percentage (6%) pertinent issues which staff should consider in their examination of procedures followed by the company in preparing the forecast. [12 marks]