That is true even if another party such as an independent accountant assembles the presentation because a financial forecast is simply a quantification of the responsible party's plans and only the responsible party (usually management) has the authority to carry out those plans.
In a somewhat over-simplification, SOP 92-2 indicates that the responsible party has a reasonably objective basis for presenting a financial forecast if sufficiently objective assumptions can be developed for each key factor.
To have a reasonably objective basis to present a financial forecast, the responsible party must be able to point to data or other information including informed judgments (e.
Although highly judgmental, this factor more often than not is critical in deciding when a presentation of prospective financial information may be labeled a financial forecast.
The new SOP makes a distinction between the responsible party's evaluation of whether he or she has a reasonably objective basis to present a financial forecast and whether the assumptions used are appropriate.
SOP 92-2 indicates that there are several factors that should be considered by the responsible party when evaluating whether assumptions underlying a financial forecast are appropriate including whether:
When a financial forecast is subjected to challenge by a third party, that challenge may often be based on a contention that sufficient facts and informed judgments did not exist to present a financial forecast, i.
Undue optimism at the time of selection can haunt a preparer and his or her independent accountants when a financial forecast is challenged by those with the benefit of hindsight.
A major issue in evaluating whether a reasonably objective basis exists to present a financial forecast is the length of the forecast period.
Provide additional reporting guidance on items that the accountant would preferably include in the report when omissions of disclosures required under the guidelines for presentation of a financial forecast come to his or her attention.
This financial forecast was prepared to help you develop your personal financial plan.