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Other Assurance AssignmentsOther AssuranceProspective Financial Information (PFI)ISAE 3400Due Diligence

ACCA · Question 03 · Other Assurance Assignments

SECTION B: ADVISORY REPORT

You are a manager in the advisory department of a large accounting firm. Your firm has been approached by the VitaNova Foundation, a large global healthcare non-governmental organization (NGO). VitaNova is not currently an audit client of your firm.

VitaNova is applying for a $50 million grant from the World Health Organization (WHO) to build and operate a network of mobile vaccination clinics across Sub-Saharan Africa over the next three years. As part of the grant application, the WHO requires an independent assurance report on the Prospective Financial Information (PFI) prepared by VitaNova. The PFI includes detailed forecasts of capital expenditure, operational running costs, and projected patient reach.

Furthermore, to execute the logistics of this project, VitaNova is planning to partner with 'MediDeliver', a local medical logistics company based in the region. VitaNova's board has asked your firm to conduct a brief due diligence review on MediDeliver before they sign a binding partnership agreement.

Requirements:
(a) Identify and explain the matters your firm should consider before accepting the engagement to report on the Prospective Financial Information (PFI). (8 marks)
(b) Describe the examination procedures you would perform on the Prospective Financial Information (PFI) regarding the forecasted capital and operational expenditures. (10 marks)
(c) Recommend specific financial and operational due diligence procedures your firm should perform regarding the proposed partnership with MediDeliver. (7 marks)

How to approach this question

For part (a), apply ISAE 3400 principles regarding acceptance (intended use, assumptions, timeframe). For part (b), focus on procedures that test the *assumptions* behind the numbers (quotes, historical comparisons, donor rules). For part (c), split your answer clearly into 'Financial' and 'Operational' due diligence, tailoring the points specifically to a medical logistics company.

Full Answer

Prospective Financial Information (PFI) engagements are governed by ISAE 3400. Because PFI relates to the future, the auditor can only provide moderate/negative assurance on whether the assumptions provide a reasonable basis for the forecast. Due diligence is a broader advisory engagement. Financial due diligence looks at historical numbers to assess stability, while operational due diligence looks at the target's physical and structural capacity to deliver the required services (in this case, cold-chain medical logistics).

Common mistakes

In part (b), students often suggest standard historical audit procedures (e.g., 'vouch the invoice for the mobile clinic'). You cannot vouch an invoice for something that hasn't been bought yet! Procedures must focus on quotes, estimates, and assumptions. In part (c), students often focus only on financial due diligence and forget the operational aspects, which are critical for a logistics partner.
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