Chapter 12 - Written Representation

Question 1

What are written representations in the context of an audit?

Answer 1

ISA 580 Written Representations covers this area. Written representations (or “management representations”) are a form of audit evidence. They are contained in a letter, written by the auditor, signed by the company’s directors on entity letter headed paper, prior to the completion of audit work and before the audit report is signed.

Question 2

What part of audit evidence is a written representation?

Answer 2

FINAL PIECE OF AUDIT EVIDENCE

Question 3

When are written representations obtained?

Answer 3

They are obtained before the completion of audit work and before the auditor’s report is signed.
The written representations are dated as near as possible, but not after, the date of the auditor’s report on the financial statements.

Question 4

Why are written representations important for auditors?

Answer 4

They provide confirmation from management on key matters, supporting the reliability of the financial statements and confirming that all necessary information has been provided to the auditor.

Question 5

What are some general matters included in written representations? (4)

Answer 5

Written representations are required for general matter, for example where those charged with governance confirm they have
1. Fulfilled their responsibility for the preparation of the financial statements in ACCORDANCE WITH the applicable FINANCIAL REPORTING FRAMEWORK
2. Provided the auditor with ALL RELEVANT INFO and to all accounting records
3. RECORDED and REFLECTED ALL transactions in the financial statements
4. Management acknowledge that the aggregated UNCORRECTED MISSTATEMENTS are IMMATERIAL to the financial statements

Question 6

What is the significance of the date on written representations?

Answer 6

They should be dated as near as possible, but not after, the date of the auditor’s report on the financial statements.

Question 7

Why might some audit evidence only be available through written representations?

Answer 7

Certain information may be confined to management’s knowledge or based on judgement or opinion, such as estimates for future warranty provisions.

Question 8

Does obtaining written representations mean that other audit evidence is not needed?

Answer 8

No, other audit evidence must still be obtained, and written representations serve to support that evidence.

Question 9

What should an auditor do if they doubt the reliability of written representations?

Answer 9

The auditor should evaluate the effect on reliability, especially if there are concerns about management’s competence, integrity, ethical values, or diligence.

Question 10

How should auditors handle inconsistent written representations?
If we are still not happy what is the solution?

Answer 10

If representations are inconsistent with other evidence, the auditor should perform further audit procedures to resolve the matter and, if unresolved, reconsider their assessment of management’s reliability.

If not happy
1. Increase in testing
2. Modified opinion = Not true and fair

Question 11

Which two of the following are purposes of a written representation letter?
A Confirmation that management has received the signed audit report
B Confirmation that management has fulfilled its responsibility for the preparation of the financial statements
C Confirmation of all representations made by management in the course of the audit
D Confirmation that management has recorded and reflected all transactions in the financial statements
E Confirmation that management understands the terms of the engagement

Answer 11

B Confirmation that management has fulfilled its responsibility for the preparation of the financial statements
D Confirmation that management has recorded and reflected all transactions in the financial statements

Question 12

2 According to ISA (UK) 580, Written Representations which two of the following must auditors obtain written representations about?
A Material matters where other evidence cannot reasonably be expected to exist
B Material matters where other evidence is missing due to an emergency such as a fire
C Management’s belief that it has fulfilled its responsibility for the preparation of the financial statements
D That the financial statements record and reflect all transactions

Answer 12

C Management’s belief that it has fulfilled its responsibility for the preparation of the financial statements
D That the financial statements record and reflect all transactions
Auditors may only obtain written representations to support other audit evidence (ISA (UK) 580 paragraph 13).
Where evidence is missing due to a fire, this is not a matter to obtain a written representation on but is an inability to obtain sufficient appropriate audit evidence.

Question 13

3 For each of the following statements concerning written representations, select whether they are true or false.
The auditor should evaluate whether the representations appear reliable and are consistent with other evidence obtained before they are relied on as audit evidence.
A True
B False
Written representations are appropriate evidence when evidence the auditors expected to be available is unavailable.
C True
D False
If written representations given do not agree with other evidence, auditors should not trust any other representations made by management during the course of the audit.
E True
F False

Answer 13

A True
D False
F False
Statement 2 is false as this is an inability to obtain sufficient appropriate audit evidence. Statement 3 is also false because if written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the matter. If the matter remains unresolved, the auditor shall reconsider the assessment of management.

Question 14

4 Auditors seek written representations from management to support oral representations that have been made during the course of the audit.
For each of the following in relation to a statutory audit, select whether a written representation is required or not required.
The directors have fulfilled their responsibility for the preparation of the financial statements.
A Required
B Not required
The accounting policies selected and applied by management are appropriate.
C Required
D Not required
A material item, subject to management judgement, for which no other evidence could reasonably be expected to exist.
E Required
F Not required

Answer 14

A Required
D Not required
F Not required
Specific written representations may include confirmation from management that accounting policies selected are appropriate, but this is not compulsory.
Auditors may only obtain written representations to support other audit evidence (ISA 580 paragraph 13).

Question 15

5 Written representations may be sought as audit evidence.
Which two of the following are valid circumstances in which written representations may be required?
A To support other evidence about the suitability of accounting policies
B Where information which would normally be expected to be available is unavailable
C To support inspection of a board minute introducing the directors’ intention to sell a material investment
D When the alternative audit procedure would be too time consuming

Answer 15

A To support other evidence about the suitability of accounting policies
C To support inspection of a board minute introducing the directors’ intention to sell a material investment

The other two options would not be valid circumstances in which to seek written representations. If information normally expected to be available is unavailable, this would indicate an inability to obtain sufficient appropriate audit evidence. The fact that an alternative audit procedure is time-consuming is not a reason to seek a written representation – a written representation cannot act as a substitute for other evidence which is expected to exist.

Question 16

6 On which two of the following matters should an auditor seek written representations?
A Whether there are plans to abandon product lines that will result in obsolete inventory
B Whether plant and equipment held on the client’s premises exists
C The existence (or not) of reconciling items between the cash balance in the accounts and the bank statement balance
D Whether there are any undisclosed subsequent events

Answer 16

A Whether there are plans to abandon product lines that will result in obsolete inventory
D Whether there are any undisclosed subsequent events
The auditor should be able to obtain sufficient alternative evidence regarding the existence of plant and equipment and reconciling items on the cash at bank account.

Question 17

7 For each of the following statements concerning written representation letters, select whether they are true or false.
Written confirmations are required from all client staff who have made oral representations.
A True
B False
The matters to be referred to in the written representation letter shall be discussed by the auditor with senior management.
C True
D False
Written representations can be used as a substitute for evidence which would be available to the auditor by other means.
E True
F False

Answer 17

B False
C True
F False
It is usually only of senior management that auditors request written representations, as they are responsible for matters of judgement, cooperating with the auditors etc.
Written representations cannot be used as a substitute for other evidence that is expected to be available.

Question 18

8 Which two of the following are purposes of a written representation letter?
A Acknowledgement that management has fulfilled its responsibility for the preparation of the
financial statements
B Provision of evidence in respect of material items where other evidence is available
C Acknowledgement by management of its belief that the aggregate of uncorrected misstatements is immaterial to the financial statements
D Confirmation by management of the scope of the work to be carried out by the assurance firm
E Provision of details of proposed modifications to the auditor’s report

Answer 18

A Acknowledgement that management has fulfilled its responsibility for the preparation of the financial statements
C Acknowledgement by management of its belief that the aggregate of uncorrected misstatements is immaterial to the financial statements
Acknowledgement that management has fulfilled its responsibility for the preparation of the financial statements and acknowledgement by management of its belief that the aggregate of uncorrected misstatements is immaterial to the financial statements are the two purposes of the written representation letter from the list provided.
Where other evidence is available on a matter, the written representation letter does not serve to provide evidence. Management’s confirmation of the scope of the work to be carried out is included in an engagement letter.

Question 19

9 Which one of the following ISA Standards (UK) is not normally referred to in a standard written representation letter from management?
A ISA (UK) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
B ISA (UK) 300, Planning an Audit of Financial Statements
C ISA (UK) 550, Related Parties
D ISA (UK) 560, Subsequent Events

Answer 19

B ISA (UK) 300, Planning an Audit of Financial Statements

ISA (UK) 300, Planning an Audit of Financial Statements is not referred to in a written representation letter as it relates to how the auditor plans the audit, which is beyond the scope of management and those charged with governance of an audited entity.
Fraud, related parties and subsequent events are all areas where the auditor has a responsibility to receive representations from management regarding specific aspects of the audit.

Question 20

10 In addition to the written representations required by ISA (UK) 580, Written Representations, some other ISA Standards include requirements to obtain written representations about specific matters.
In relation to which two of the following matters do ISA Standards (UK) require auditors to obtain written representations?
A ISA (UK) 570, Going Concern, regarding management’s future plans and their feasibility
B ISA (UK) 700, Forming an Opinion and Reporting on Financial Statements, that the financial
statements are true and fair
C ISA (UK) 250 Section A, Consideration of Laws and Regulations in an Audit of Financial
Statements, that all applicable laws and regulations have been complied with
D ISA (UK) 450, Evaluation of Misstatements Identified During the Audit, regarding management’s belief that uncorrected misstatements are immaterial

Answer 20

A D
A ISA (UK) 570, Going Concern, regarding management’s future plans and their feasibility
D ISA (UK) 450, Evaluation of Misstatements Identified During the Audit, regarding management’s belief that uncorrected misstatements are immaterial

ISA (UK) 700 does not require the auditor to obtain a written representation regarding the truth and fairness of the financial statements. Rather, it is the purpose of the audit to provide an opinion on whether this is the case.
ISA (UK) 250 Section A does not mandate a representation that the entity has actually complied with all applicable laws and regulations, but instead that all known instances of non-compliance have been disclosed to the auditor. If one reflects on this then it can be seen to be logical when one considers non-compliance: if the ISA required the auditor to obtain a representation that all laws had been complied with, then a single act of non-compliance would make this impossible. This would mean that the auditor would not be able to fulfil the ISA requirement, which would have disproportionately great consequences for the audit.