SAE 3400 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
When a company or promoter shows a lender or investor a forecast or a projection, the next question is often whether a chartered accountant has looked at it. SAE 3400 sets out what such an examination is, what comfort it can and cannot give, and how the accountant's report must be worded. If you are building the model itself, our virtual CFO services can help with the assumptions and the workings.
SAE 3400, effective in relation to reports on projections or forecasts issued on or after April 1, 2007 (paragraph 35). ICAI may revise standards, so check the current text on icai.org.
Under SAE 3400 the accountant examines the assumptions behind prospective financial information and whether the figures are properly prepared from them. Because the evidence is about the future, the accountant gives only moderate assurance on the assumptions (paragraph 9) and cannot say the results will be achieved (paragraph 8). The report states that actual results are likely to differ. The accountant must not accept, or must withdraw, if the assumptions are clearly unrealistic (paragraph 11).
What counts as prospective financial information
Paragraph 3 describes prospective financial information as information based on assumptions about future events and possible actions of an entity; it is highly subjective and needs considerable judgment. It can be a forecast, a projection or a mix of both. A forecast rests on assumptions about events management expects to occur and actions it expects to take (paragraph 4). A projection rests on hypothetical assumptions, such as for a start-up or a major change in operations, or on a mixture of expected and hypothetical assumptions, and shows a "what-if" scenario (paragraph 5). In plain terms the first kind are management's most reasonable estimate of what will happen, and the second kind are "what if" assumptions.
| Forecast | Projection | |
|---|---|---|
| Assumptions | What management expects to happen | Hypothetical, or a mix of expected and hypothetical |
| Typical use | Loan application for an established business, budget shared with a lender | Start-up business plan, a proposed expansion, a change of operations |
| Paragraph | 4 | 5 |
Paragraph 6 notes the information may be an internal tool or be given to third parties, for example in a prospectus, an annual report or cash flow forecasts for lenders. The standard does not apply to prospective information stated only in general or narrative terms, such as a management discussion in an annual report (paragraph 1). Management is responsible for preparing and presenting the information, including the sources, the basis and the assumptions (paragraph 7). The standard asks the accountant to apply the Standards on Auditing so far as practicable; see our list of Standards on Auditing.
What the accountant is looking for (paragraph 2)
The accountant must obtain sufficient appropriate evidence on four things: that management's expected assumptions are not unreasonable (or, for hypothetical assumptions, are consistent with the purpose); that the information is properly prepared from the assumptions; that it is properly presented and all material assumptions are adequately disclosed with a clear indication of whether each is expected or hypothetical; and that it is prepared consistently with historical statements using appropriate accounting principles.
Assurance: moderate, and not about results
Paragraph 8 says the evidence is itself future-oriented and speculative, so the accountant cannot express an opinion on whether the results will be achieved. Paragraph 9 adds that it may be hard to reach the level of satisfaction needed for a positive opinion on the assumptions, so the accountant provides only a moderate level of assurance on their reasonableness. This is a different footing from the audit assurance described in our hub on audit, review, agreed-upon procedures and compilation.
The professional conduct side is dealt with in our post on the Second Schedule to the Chartered Accountants Act, items 2 to 6, which covers the forecast item; the standard itself notes that its guidance is in line with the Act's clause on forecasts.
Acceptance (paragraphs 10 to 12)
Before accepting, the accountant considers the intended use, whether distribution is general or limited, the nature of the assumptions, the elements included and the period covered (paragraph 10). The accountant must not accept, or must withdraw, when assumptions are clearly unrealistic or the information will be inappropriate for its intended use (paragraph 11). Terms are agreed in an engagement letter that deals with those matters and with management's responsibility for the assumptions and for supplying all relevant information and source data (paragraph 12).
Knowledge of the business and the period (paragraphs 13 to 16)
The accountant needs enough knowledge of the business to see whether all significant assumptions have been identified, and must understand the process used to prepare the information: controls, expertise of the preparers, supporting documentation, techniques, methods, and the accuracy of past forecasts (paragraph 13). Reliance on historical information must be considered, including whether it was audited or reviewed (paragraph 14), and a qualified earlier report or a start-up or expansion phase needs thought (paragraph 15). The period covered should not run beyond the time for which management has a reasonable basis for its assumptions; operating cycle, reliability of assumptions and user needs are relevant (paragraph 16).
Examination procedures (paragraphs 17 to 25)
| Area | What is done | Paragraph |
|---|---|---|
| Planning the work | Consider prior knowledge, management's competence, likelihood of misstatement, extent of judgment, sources and reliability of data, stability of the business and team experience | 17 |
| Expected assumptions | Assess the source and reliability of evidence from internal and external sources and test against history and the entity's capacity | 18 |
| Hypothetical assumptions | Check that all significant implications are taken into account; that they match the purpose and are not clearly unrealistic | 19, 20 |
| Arithmetic and consistency | Recompute and review internal consistency, for example common variables such as interest rates | 21 |
| Sensitivity | Focus on areas sensitive to variation that could materially affect the results | 22 |
| Part of a statement | Consider interrelationships with other components | 23 |
| Elapsed period | Decide procedures on any elapsed part of the current period | 24 |
| Representations | Written representations on intended use, completeness of assumptions and acceptance of responsibility | 25 |
Presentation and disclosure (paragraph 26)
The accountant considers whether the presentation is informative and not misleading, accounting policies are disclosed, assumptions are adequately disclosed with expected and hypothetical ones distinguished, high uncertainty and sensitivity are disclosed, the date of preparation is disclosed, ranges are not chosen in a biased way, and any change of accounting policy and its effect are disclosed. Documentation must support the report and show the work followed the standard (paragraph 27).
The report (paragraphs 28 to 34)
The report names the information examined and the applicable standard, states that management is responsible for it and its assumptions, says the work examined evidence supporting assumptions on a test basis, gives a negative-assurance statement on whether the assumptions provide a reasonable basis, and gives an opinion on whether the information is properly prepared on the basis of the assumptions and presented under the relevant framework. It adds caveats about the achievability of results, and it carries the date, place and signature (paragraph 28). Paragraph 29 says the report must state that actual results are likely to differ, and for projections that the information is prepared for a stated use on hypothetical assumptions and should not be used for other purposes. The standard's examples and appendices are not reproduced here.
When presentation or disclosure is inadequate the accountant gives a qualified or adverse opinion or withdraws (paragraph 32). If a significant assumption does not provide a reasonable basis, the accountant gives an adverse opinion with reasons or withdraws (paragraph 33). If conditions preclude necessary procedures, the accountant withdraws or disclaims and describes the limitation (paragraph 34).
Worked example (illustrative)
Harsha Foods LLP, an invented bakery chain, wants a three-year projection for a bank loan to open ten outlets. The partners assume sales per outlet of an illustrative Rs 6 lakh a month from the first quarter. The accountant compares this with the existing outlets' history, finds that the older outlets took nine months to reach that level and that the projection ignores the extra production capacity needed (paragraph 19). Management revises the assumptions and adds the investment, and discloses the sensitivity to sales ramp-up. The report then gives negative assurance on the assumptions, an opinion on preparation and presentation, and the caveat that actual results are likely to differ. If management had refused to revise, paragraph 33 would call for an adverse opinion or withdrawal. A bank-facing example of related work is in our guide to preparing a CMA report.
Common lapses
- Showing the projection without clear disclosure of which assumptions are hypothetical.
- A period longer than management has a reasonable basis to support.
- No sensitivity disclosure for the assumptions that move results most.
- Wording the report so that it appears to vouch for the results.
- Not agreeing the intended use and distribution in the engagement letter.
Need help with a forecast or projection?
A forecast that survives an accountant's examination begins with documented assumptions, a consistent model and clear disclosure. Our team can help you build and document the model and prepare management reporting; see our virtual CFO services.
Key takeaways
- The accountant examines assumptions and preparation, not whether results will be achieved.
- Assurance on assumptions is moderate (paragraph 9).
- Clearly unrealistic assumptions mean no acceptance, or withdrawal (paragraph 11).
- Expected and hypothetical assumptions must be distinguished in disclosure (paragraph 26).
- The report must warn that actual results are likely to differ (paragraph 29).
Read next
- Audit, review, agreed-upon procedures and compilation compared
- SAE 3402, controls at a service organisation
- Second Schedule to the Chartered Accountants Act, items 2 to 6
- How to prepare a CMA report for a bank loan
Disclaimer: Based on the Standards on Auditing, the review, assurance and related services standards, the Compendium of Standards on Internal Audit (as on 1 October 2022) and the Compendium of Forensic Accounting and Investigation Standards (as on September 2025) issued by the Institute of Chartered Accountants of India, in the versions named in the article, as consulted on 4 October 2026. ICAI revises standards from time to time; check the current text and effective dates on icai.org and the Companies Act provisions referred to. This article is general information, not legal advice; check the official text before acting.