Projected financials for a bank loan: compiled, examined, never certified
A Chartered Accountant can put his name to a borrower's provisional and projected statements in only two ways: a compilation report under SRS 4410 for the provisional year, and a report under SAE
Summary
A Chartered Accountant can put his name to a borrower's provisional and projected statements in only two ways: a compilation report under SRS 4410 for the provisional year, and a report under SAE 3400 on the projections, each with a UDIN. The one thing he must never do is let the projections read as "certified", which clause (3) of Part I of the Second Schedule to the Chartered Accountants Act, 1949 makes professional misconduct.
The situation
Cash-credit renewals cluster in the weeks after the audited accounts are signed, which this year means October and November. Every renewal file carries the same pages: last year's audited figures, a provisional year, two or three projected years, and a ratio sheet the credit officer reads before anything else.
Most of those pages still start from a downloaded Excel. One projected-balance-sheet template on CAclubindia, from around 2010, has been downloaded some 44,700 times. It has no assumptions sheet and no ratios, and change one growth figure and it stops balancing, so the difference goes into cash or into "bank borrowings" by hand. And at the bottom of more of these sets than I would like, the CA's stamp sits under the word "certified".
The rule
What a CA may sign.
| Year in the set | What it is | Standard | What the report must say |
|---|---|---|---|
| Last audited year | Audited financial statements | Already reported on | Nothing new |
| Year in progress | Provisional statements from management's records | SRS 4410 (Revised), Compilation Engagements | Compiled from management's records; management is responsible; not audited or reviewed; no opinion or conclusion |
| Projected years | Prospective financial information | SAE 3400, The Examination of Prospective Financial Information | Management is responsible for the projections including the assumptions; negative assurance on the assumptions; properly prepared on those assumptions; actual results are likely to differ, and the difference may be material |
UDIN applies to both. ICAI's UDIN FAQ says in terms that a member complying with SRS 4410 on provisional statements has to obtain a UDIN for them, and the window to generate it is 60 days from signing.
What a CA may not do. Clause (3), Part I, Second Schedule to the Chartered Accountants Act, 1949 makes it misconduct for a member to permit his name to be used in connection with an estimate of earnings contingent upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast. A CA may help prepare or review projections, provided the report states the sources, the basis and the major assumptions. "Certified" says the opposite.
What the bank reads. None of the ratio benchmarks below is law. They come from the Tandon Committee's methods and each bank's own credit policy, and the sanction letter is what binds.
| Ratio | How it is worked | Typical benchmark |
|---|---|---|
| Current ratio | Current assets ÷ current liabilities, with the next twelve months' term-loan instalments inside current liabilities | 1.33 (Tandon method II); some banks accept lower |
| TOL/TNW | Total outside liabilities ÷ tangible net worth (capital and reserves less intangibles and accumulated losses) | Banks typically cap between 3 and 5 |
| Debt-equity | Long-term debt ÷ tangible net worth | 2.0 as a common covenant |
| DSCR | (PAT + depreciation + interest on term debt) ÷ (interest on term debt + principal repaid in the year) | At least 1.25 each year, 1.50 on average |
| Interest cover | EBITDA ÷ total interest | Read beside DSCR |
| Indicative MPBF | 0.75 × current assets − current liabilities other than bank borrowings (Tandon method II) | Limit above it is questioned, not forbidden |
Where people go wrong
"Certified projections." It is on the cover of the bank's own checklist more often than it should be, and the CA signs what the checklist says. The words that are safe are "compiled" for the provisional year and "examined" for the projections, with the assumptions printed on the page above the management's signature, not in an email.
One report for the whole set. A single paragraph covering the provisional year and three projected years is two different engagements pretending to be one. The provisional year is a compilation, with no assurance at all. The projections carry negative assurance on the assumptions. The two reports say different things because the standards require different things.
Balancing by hand. If the balance sheet only balances because someone typed the difference into cash, every ratio built on it is wrong in a way nobody can see. The honest construction treats bank finance as the balancing figure: work out what the business needs, subtract what the owners and term lenders fund, and what is left is the cash-credit requirement. If that exceeds the limit, the set should say so in rupees as a funding gap, not hide it in "other current liabilities".
Leaving current maturities out of current liabilities. Next year's term-loan instalments are a current liability. Leaving them in term loans flatters the current ratio and MPBF by exactly the amount the bank will add back.
Two definitions of DSCR. Some lenders put all interest, including cash-credit interest, in both numerator and denominator. The two give different answers on the same figures. Show the interest-cover line beside DSCR so the credit officer can read either.
Unsecured loans from promoters as equity. Banks treat them as quasi-equity only where they are subordinated to the bank's debt, usually by an undertaking. Counting them into net worth without that undertaking inflates TNW and depresses TOL/TNW.
Tax in the projected years. Carry the rates in force for tax year 2026-27, which the Finance Act, 2026 left unchanged, and say that later years are assumed unchanged. For a proprietor on the default regime the rebate is now s.156 of the Income-tax Act, 2025 (the old s.87A), with marginal relief above ₹12 lakh.
The UDIN from last month's file. A UDIN belongs to one engagement. A template or tool that remembers it and prints it under the next client's signature has produced a false document.
What to do
- Write the assumptions down first, with the management, and get them signed: growth, cost percentages, working-capital days, capex, term-loan repayments and the cash-credit limit.
- Build the set so the balance sheet balances by formula, with bank finance as the plug and any excess over the limit shown as a funding gap.
- Compute the six ratios on the bank's own definitions and benchmarks from the sanction letter, and move next year's term-loan instalments into current liabilities before you do.
- Issue two reports: an SRS 4410 compilation report on the provisional year and an SAE 3400 report on the projections, adapted to the engagement, each with its own UDIN.
- Strike "certified" wherever the bank's format prints it, and tell the branch why.
The tool
I was rebuilding the same set by hand every renewal season, and the part that took time was never the arithmetic; it was making it balance again every time the client changed a growth figure, and then retyping the result onto letterhead. So I built a projected-financials builder. You type last year's sales and profit, the entity type and the limit you hold, and open the folds for the full audited base year and the assumptions when you need them; the provisional year and three projected years compute as you type, the balance sheet balances with bank finance as the balancing figure, a funding gap beyond the limit is stated in rupees, and the six ratios above sit against benchmarks you set from the sanction letter. Preview prints a six-page submission set on your letterhead: both reports with UDIN lines, the two statements with signature blocks, the notes and assumptions with the management's declaration, and a ratios annexure, with nothing about the tool on the paper. It does not prepare full CMA data, it does not compute Schedule II or income-tax depreciation, surcharge or loss set-off, and its two report wordings are illustrative and must be read against the standards before you sign. It does not remember a UDIN on the device from one client to the next. Inputs stay on your device.
Open the projected financials page
Sources
- The Chartered Accountants Act, 1949, Second Schedule, Part I — https://www.cabkgoyal.com/the-second-schedule-part-i-the-chartered-accountants-act-1949/ (India Code: https://upload.indiacode.nic.in/schedulefile?aid=AC_CEN_22_29_00001_194938_1517807318353&rid=736)
- ICAI, SRS 4410 (Revised), Compilation Engagements — https://www.caalley.com/eqc/42210aasb31911d.pdf
- ICAI, SAE 3400, The Examination of Prospective Financial Information — https://ftp.caalley.com/eqc/15410Link45_3400SAE-AAS35.pdf
- ICAI UDIN FAQ on provisional financial statements (as reproduced) — https://www.cainindia.org/news/4_2020/whether_udin_is_required_on_provisional_financial_statements_compilation_of_information.html
- TaxGuru — can a CA sign provisional financial statements (14 July 2022) — https://taxguru.in/chartered-accountant/chartered-accountant-sign-provisional-financial-statement.html
- TaxGuru — SAE 3400 analysis (25 May 2020) — https://taxguru.in/finance/sae-3400-examination-prospective-financial-information-analysis.html
- ProjectReport.online — DSCR, MPBF and current ratio (5 October 2025) — https://projectreport.online/blog/what-is-dscr-mpbf-current-ratio.html
- MSME Central — TOL/TNW explained (4 August 2025) — https://www.msmecentral.in/insights/cma-data/tol-tnw-ratio-explained
- TaxGuru — income-tax rates for AY 2026-27 and AY 2027-28 — https://taxguru.in/income-tax/income-tax-rates-ay-2026-27-ay-2027-28.html