ACCA AAA ^INT Syllabus E. Completion, Review and Reporting - Written representations from management - Notes ^{4 / 4}

Definition

It’s is a (written) statement by management provided to the auditor to confirm certain matters or to support other audit evidence

Purpose

It’s purpose is:

To obtain representations that management have prepared the FS, including;

To support other audit evidence relevant to the financial statements

if determined necessary by the auditor or required by ISA's.

This is when other evidence is not available e.g..

• plans or intentions that may affect the carrying value of assets or liabilities;

• confirmation of directors’ judgements / estimates

• compliance issues

How are written representations obtained?

As the audit progresses, the audit team will assemble a list of those items about which it is appropriate to seek management representations. 

During completion the auditors will write to the client confirming these issues 

The client must formally document, and sign, a response and send it to the auditor.

In what form are they?

A letter from the client to the auditors responding to the necessary points. (It is common for the auditor to draft the letter for the client, who simply reproduces it on their own letter-headed paper, approves it and signs it).

Or even, minutes of a meeting where representations were made orally, which can be signed by management.

Quality and reliability?

They are internal sources of evidence, and therefore subject to bias, and potentially unreliable  

ISA 580 also clearly states that written representations should only be sought to support other audit evidence. They do not, on their own, constitute sufficient evidence.

Before they can be used

the auditor must consider their reliability in terms of:

• inconsistencies with other forms of evidence; and

If they’re inconsistent then perform further procedures.

If worries about integrity etc then consider withdrawal, or if not permitted, consider the impact on the audit report. (likely a disclaimer of opinion)

If management refuses to provide written representations - then again a probable disclaimer or withdrawal

Additional matters requiring written representation

• directors have assessed the risk of fraud and consider it to be low;

• directors are not aware of any actual, or suspected, instances of fraud;

• all related parties have been identified and transactions with them disclosed

• directors consider the aggregate of all uncorrected misstatements to be immaterial;

• the directors have considered all subsequent events

• the directors have considered all possible events, matters and contingencies in performing their going concern review.