(A5, S4) Management Representations

Question 1

What are some of the written representations that should be included from management?

Answer 1

-The belief that misstatements identified by the auditor and not corrected are material.
Explanation: The representation letter should include management’s belief that the effects of any uncorrected financial statement misstatements aggregated by the auditor during the current engagement and pertaining tot he latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

Question 2

To what matter would a materiality limit NOT apply in obtaining written management representations?

Answer 2

-The availability of minutes of stockholders’ and directors’ meetings.
-Fraud involving employees with significant roles in the internal control structure. (Immaterial effect would still have serious implications with respect to the integrity of the employees involved).
-Instances of fraud involving management
Materiality limits only apply to representations that directly related/affect amounts included in the financial statements.

Question 3

The date of the management representation letter should coincide with the date of the:

Answer 3

Auditor’s report.

Question 4

What are the purpose of management representation letters?

Answer 4

To confirm management’s oral evidence supplied during the engagement & reduce the possibility of a misunderstanding concerning management’s responsibility for the financial statements. Specific written representations obtained during the audit might include acknowledgment that all compensating balances or other restrictions on cash have been disclosed.

Question 5

What information from four categories does the representation letter typically include?

Answer 5

• Financial statements
• Completeness
• Recognition, measurement, and disclosure
• Subsequent events

Question 6

A limitation on scope of an auditor’s examination sufficient to preclude an unmodified opinion will always result when management:

Answer 6

Refuses to furnish a management representation letter to the auditor.