An engagement to examine an entity's financial projection would be appropriate if the projection is distributed to:

• A. All employees of the entity.
• B. Potential stockholders requesting a prospectus or a registration statement.
• C. A bank negotiating a loan.
• D. All stockholders of record.

Answer: (C)

An examination of a financial projection is appropriate when the projection is intended for a specific third party who will rely on it to make a decision. A bank negotiating a loan fits that scenario because the bank will use the projection to assess the entity’s ability to repay the loan and will rely on the projection in making its lending decision.

Distributing the projection to all employees or to all stockholders doesn’t create a defined external user with a concrete decision tied to the projection, so an examination isn’t the typical form of assurance in that context. While potential stockholders requesting a prospectus involve third parties, that situation falls under securities disclosure practices rather than the typical lender-due-diligence use of a projection for loan decisions. Therefore, the bank negotiating a loan is the best fit for an engagement to examine a financial projection.