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Companies seeking to access capital markets commonly include pro forma financial information in their prospectuses as a key element to enable investors and others to assess the investment opportunities presented better. Pro forma financial information included in an issuer’s prospectus illustrates the impact of a proposed acquisition, equity or debt issuance, or other transactions on the issuer’s historical financial information as if such event or transaction had occurred at an earlier selected date.
“Pro forma financial information included in prospectuses plays an important role in informing the public’s investment decisions in today’s increasingly global capital markets. Enhancing public confidence in how such financial information has been produced is therefore especially important”, said Prof Arnold Schilder, chairman of the IAASB. “The IAASB is confident that this new standard will help meet the public interest need for harmonised practices internationally in this area”, Prof Schilder added.
The new ISAE 3420 provides comprehensive guidance on the nature and extent of a practitioner’s work when engaged to report on the compilation of pro forma financial information. Among other matters, it establishes minimum benchmarks for suitable criteria for the compilation of such information. It also covers related engagement acceptance and reporting considerations. ISAE 3420 is effective for assurance reports dated on or after March 31, 2013.