SAE 3420 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's prospectus shows what its numbers would look like if a major transaction, such as an acquisition, had happened earlier, a practitioner is often asked to report on it. SAE 3420 sets out what that report covers: whether the company compiled the pro forma information properly on stated criteria, not whether the pro forma picture is correct. For documentation and process support ahead of such an engagement, see our compliance advisory services.
SAE 3420, effective for assurance reports dated on or after 1st April, 2016 (paragraph 9). ICAI may revise standards, so check the current text on icai.org. Whether a prospectus needs such a report is a matter of the securities law that governs the issue, which this article does not cover.
Under SAE 3420 the practitioner gives a reasonable assurance opinion on whether the responsible party compiled the pro forma information, in all material respects, on the basis of the applicable criteria (paragraph 10). The practitioner does not compile it (paragraph 2), does not audit or review the underlying financial information (paragraph 6) and gives no assurance that the actual outcome would have been as shown (paragraph 35(e)).
What the standard covers
Paragraph 1 says the standard deals with reasonable assurance engagements to report on the responsible party's compilation of pro forma financial information in a prospectus, where the securities law or exchange regulation requires such reporting or it is generally accepted practice. The responsible party, not the practitioner, compiles the information; the practitioner's sole responsibility is to report on whether it was compiled in all material respects on the applicable criteria (paragraph 2). Non-assurance compilation work is excluded (paragraph 3); for that see our article on SRS 4410 (Revised).
Paragraph 4 explains the purpose of pro forma information: solely to illustrate the effect of a significant event or transaction on unadjusted financial information as if it had occurred at an earlier chosen date. It does not represent actual position, performance or cash flows. The information is presumed to be shown in columns: unadjusted information, pro forma adjustments, and the resulting pro forma column (paragraph 11(c)).
| Column | What it holds | Who prepares it |
|---|---|---|
| Unadjusted financial information | Extract from a source, usually the entity's own financial statements | Responsible party (entity) |
| Pro forma adjustments | Changes that illustrate the event, and changes needed to align policies with the entity's framework | Responsible party |
| Pro forma column | The unadjusted figures after applying the adjustments | Responsible party |
What the engagement involves
Paragraph 6 describes the work as assessing whether the applicable criteria give a reasonable basis for presenting the significant effects directly attributable to the event, and obtaining sufficient appropriate evidence that the adjustments give appropriate effect to those criteria and that the pro forma column properly applies them. It includes evaluating the overall presentation. The practitioner does not update or reissue reports on the historical information, and does not audit or review it. Paragraph 8 requires compliance with the Code of Ethics, including independence, and engagement-level quality control. Our hub on audit, review, agreed-upon procedures and compilation shows where this engagement sits among the others.
The objectives are to obtain reasonable assurance on whether the information was compiled, in all material respects, on the applicable criteria, and to report accordingly (paragraph 10). "Applicable criteria" means the criteria the responsible party used, set by a recognised standard-setting body or by law, or developed by the responsible party where none exist (paragraph 11(a)).
Acceptance (paragraphs 12 and 13)
Before accepting, the practitioner confirms capability and competence, that the criteria are suitable and the information is unlikely to be misleading for its purpose, and that any opinion wording prescribed by law is one the practitioner will likely be able to give from the specified procedures. The practitioner also considers whether law permits use of, or reference to, a modified audit opinion or an emphasis of matter on the source statements, whether enough understanding of the entity and any acquiree can be obtained if their historical figures were never audited or reviewed, and obtains the responsible party's agreement to its responsibilities: disclosing the criteria if not public, compiling on the criteria, and giving access to information and people, including those at an acquiree where needed.
Planning and performing (paragraphs 14 to 27)
| Area | What the practitioner does | Paragraph |
|---|---|---|
| Suitable criteria | Check that the source of unadjusted information is appropriate, adjustments are directly attributable to the event, factually supportable and consistent with the entity's framework and policies, and presentation and disclosure suffice; criteria must not conflict with law or be likely to mislead | 14, 15 |
| Materiality | Consider materiality in evaluating whether compilation was done in all material respects | 16 |
| Understanding | Understand the event, how the information was compiled, the entity and any acquiree or divestee, their industry and legal environment, and accounting practices | 17 |
| Source of figures | Determine that the source is appropriate and the extraction proper; if there is no audit or review report on the source, perform procedures to be satisfied | 18 to 20 |
| Adjustments | Check that necessary adjustments have been identified and that they are directly attributable, factually supportable and consistent with the framework; supportability checks where acquiree figures have no audit or review report | 21, 22 |
| Modified source reports | Evaluate the consequences when the source carries a modified opinion, conclusion or emphasis of matter | 23 |
| Problems found | Discuss an inappropriate source or a missing or misapplied adjustment with the responsible party and decide further action | 24 |
| Arithmetic | Determine whether calculations are arithmetically accurate | 25 |
| Presentation | Evaluate labelling that distinguishes pro forma from historical figures, whether it is not misleading, disclosures, and significant later events | 26 |
| Other information | Read the rest of the prospectus for inconsistencies with the pro forma information | 27 |
Representations and forming the opinion (paragraphs 28 to 30)
The practitioner requests written representations that all appropriate adjustments have been identified and that the information was compiled in all material respects on the applicable criteria (paragraph 28). To form the opinion the practitioner concludes whether sufficient appropriate evidence has been obtained that the compilation does not contain material omissions or inappropriate use or application of an adjustment, including whether the criteria are adequately disclosed where not public (paragraph 30). The opinion concerns compilation on the stated basis (paragraph 29).
Opinion and report (paragraphs 31 to 35)
An unmodified opinion is given when the information has been compiled, in all material respects, on the applicable criteria (paragraph 31). Where law precludes publishing a prospectus with a modified opinion but the practitioner considers a modified opinion appropriate, the practitioner discusses it with the responsible party and, if there is no agreement, withdraws or considers seeking legal advice (paragraph 32). An emphasis of matter paragraph may be added for a matter fundamental to users' understanding, if evidence shows it does not affect the compilation (paragraph 34).
The report carries a title showing it is an independent assurance report; an addressee; an introduction identifying the information, its source and whether an audit or review report on the source has been published, the period or date, and the criteria; the responsible party's responsibility; the practitioner's responsibility and the statements that the practitioner has not updated reports or audited or reviewed the underlying information and gives no assurance about actual outcomes; a reference to SAE 3420; a description of the nature of the engagement and procedures; the opinion in one of the two equivalent phrasings the standard allows; and signature, date and place (paragraph 35). The standard's application material and appendix give an illustrative report; they are described, not reproduced, here. Our post on SA 720 covers reading other information in an audit setting.
Worked example (illustrative)
Pinnacle Cables Ltd, an invented company planning a public issue, proposes to buy a smaller cable maker, Tarun Wires. The prospectus will show pro forma figures as if the acquisition had taken place on the first day of the last financial year. Management's three columns use Pinnacle's audited statements as unadjusted figures, adjustments for Tarun's results, alignment of Tarun's depreciation policy, and the effect of an illustrative Rs 50 crore borrowing for the purchase. The practitioner checks that the source is audited, that Tarun's figures come from an appropriate source (supportable by procedures if no audit report exists), that adjustments are directly attributable and consistent with Pinnacle's policies, and recomputes the pro forma column. A missed policy alignment is raised with management and corrected. The opinion states that the information was compiled in all material respects on the stated basis and gives no assurance of actual outcomes.
Common lapses
- Adjustments that reflect management's plans or synergies rather than effects directly attributable to the event.
- Using a source for acquiree figures without any audit or review report and no procedures to support it.
- Not labelling pro forma figures clearly as different from historical ones.
- Reading the opinion as comfort on future performance.
- Overlooking significant events after the date of the source.
Need help with documents that carry pro forma numbers?
Pro forma figures only work when the underlying accounts are clean, the criteria are written down and each adjustment can be traced. Our team can help you prepare the source data, adjustment schedules and supporting working papers; see our compliance advisory services.
Key takeaways
- The practitioner reports on compilation, and does not compile the information (paragraph 2).
- The opinion carries reasonable assurance on compilation against the applicable criteria (paragraph 10).
- Adjustments must be directly attributable, factually supportable and consistent with the entity's framework (paragraph 14).
- The practitioner does not audit or review the underlying information and gives no assurance on actual outcomes.
- Written representations from the responsible party are required (paragraph 28).
Read next
- SAE 3400, prospective financial information
- SAE 3402, controls at a service organisation
- Audit, review, agreed-upon procedures and compilation compared
- SA 720, reading other information
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.