Assumptions used in preparing financial forecasts should be appropriate. Recognizing that assumptions are the essence of developing financial forecasts, the quality of the underlying assumptions largely determines the quality of financial forecasts. Assumptions should be reasonable and suitably supported. The process used to develop financial forecasts should provide the means to determine the relative effect of variations in the major underlying assumptions. The process used to develop financial forecasts should provide adequate documentation of both the financial forecasts and the process used to develop them.
Documentation makes possible review and approval of financial forecasts by the responsible party.
It facilitates comparison of the financial forecasts with actual financial results, and it provides the discipline necessary for developing reliable financial forecasts. The process used to develop financial forecasts should include, where appropriate, the regular comparison of the financial forecasts with attained results. Comparison of prospective financial results with actual results for the prospective period and for prior periods for which financial forecasts were prepared provides an historical measure of success in developing financial forecasts. The process used to prepare financial forecasts should include adequate review and approval by the responsible party at the appropriate levels of authority. The ultimate responsibility should rest with the responsible party at the highest level of authority.