Chapter 12 Written representation

Question 1

1.1 nature and purpose of management representations

Answer 1

Management representations are explanations or answers given to the assurance provider during the course of an engagement. They are a form of evidence and can be oral or written.

Question 2

1.2 Purpose of written representations

Answer 2

Written confirmation of oral representations avoids confusion and disagreement (they are more reliable). Management representations may be used in all types of assurance engagement. ISA 580 requires the auditor to obtain written representations from management.

Question 3

1.3 Format of written representations

Answer 3

The auditor will usually:
- Prepare a draft management representation letter
- Ask the directors to sign it
- Require its return as evidence before the audit report is signed.
The letter should be dated as near as possible before the date of the audit report.

Question 4

2.1 contents of management representation letter

Answer 4

ISA 580 requires the auditor to seek written representations on the following matters:
- Confirmation that management has fulfilled its responsibility for the preparation of the financial statements in accordance with the relevant financial reporting framework
- Confirmation that all relevant information has been provided to the auditor
- Confirmation that all transactions have been recorded and reflected in the financial statements

Question 5

2.2 Other matters

Answer 5

In addition to representations on these general matters, the auditor will obtain specific written representations where:
- Other ISAs require representations to be obtained (ISA 540 requires the letter must include a list of all uncorrected misstatements and that the auditor obtains representations that the sum of unadjusted misstatements is immaterial to the accounts as a whole)
- The auditor decides that written representations are required to support other audit evidence
Written representations cannot be used instead of other evidence which the auditor expects to exist.
Other matters which may be the subject of written representations include:
- Whether accounting policies are appropriate
- Whether the applicable reporting framework has been complied with in respect of items such as intentions that may affect the carrying value of assets
- Whether all deficiencies in internal control of which management is aware have been communicated to auditors
- Specific written representations required by other ISAs
- Support for management’s judgement of intent in relation to a specific assertion

Question 6

3.1 Reliability

Answer 6

Written representations are more reliable than oral. There may be doubts overall the reliability of management representations, for example where:
- The auditor has concerns about competence, integrity, or diligence of management
- Where written representations are inconsistent with other audit evidence
Corroborative evidence should be sought but is not always available/ if a representation is contradicted by other evidence, the auditor should investigate the matter and consider the impact on the assessment of the reliability of management representations in general.