IAASB Issues Standard on Pro Forma Financial Info for Prospectuses

The International Auditing and Assurance Standards Board released a new assurance standard Wednesday on pro forma financial information included in a prospectus.

The new International Standard on Assurance Engagements 3420, “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus,” is aimed at companies seeking to access the capital markets. Such companies commonly include pro forma financial information in their prospectuses as a key element to enable investors and others to better assess the investment opportunities presented. The 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 the 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,” said IAASB chairman Arnold Schilder in a statement. “Enhancing public confidence in how such financial information has been produced is therefore especially important. The IAASB is confident that this new standard will help meet the public interest need for harmonized practices internationally in this area.”

The IAASB operates under the auspices of the International Federation of Accountants, of which the American Institute of CPAs is a member organization.

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 the 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.