Aster Ltd.

Aster Ltd. is preparing a prospectus following a proposed acquisition.

The pro forma financial information included in the prospectus is compiled using:

Aster Ltd.’s historical financial information, which has been audited;
the acquiree’s historical financial information, which has not been audited or reviewed; and
pro forma adjustments prepared by management to reflect the acquisition as if it had occurred on an earlier selected date.

The practitioner is considering whether the SAE 3420 engagement can be accepted.

The engagement partner makes the following statements:

Statement 1: SAE 3420 does not automatically prohibit the engagement merely because some historical financial information used in compiling the pro forma financial information has not been audited or reviewed.

Statement 2: Before accepting the engagement, the practitioner needs to determine whether sufficient understanding of the acquiree and the relevant financial information can be obtained to perform the engagement appropriately.

Statement 3: Since the acquiree’s historical financial information has not been audited or reviewed, the practitioner must first perform a complete audit of that financial information before SAE 3420 procedures can commence.

Statement 4: The SAE 3420 report provides assurance that the actual outcome of the acquisition, had it occurred on the earlier selected date, would have been exactly as illustrated by the pro forma financial information.

Which ONE of the following is correct?

A. Statements 1 and 2 only.

B. Statements 1, 2 and 4 only.

C. Statements 3 and 4 only.

D. Statements 2 and 3 only, because sufficient understanding can be obtained only after the underlying financial information has been subjected to audit procedures.