Concepts and Standards - Mgmt Representation Letters

Question 1

The date of the management representation letter should coincide with the

Answer 1

Date of the auditor’s report.

Question 2

To which of the following matters would an auditor not apply materiality limits when obtaining specific written client representations?

Answer 2

Fraud involving employees with significant roles related to internal control.

Why?

Professional standards require that a materiality limit not apply to fraud involving management or employees who have significant roles in internal control.

Question 3

“There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial statements.” The foregoing passage is most likely from a

Answer 3

Management representation letter.

Question 4

A written representation from a client’s management which, among other matters, acknowledges responsibility for the fair presentation of financial statements, should normally be signed by the

Answer 4

Chief executive officer and the chief financial officer.

Why?

These are the individuals who the auditor believes are responsible for and knowledgeable about the matters covered by the representations.

Question 5

The current chief executive and financial officers have only been employed by ABC Company for the past five months of year 2. ABC Company is presenting comparative financial statements on Years 1 and 2, both of which were audited by William Jones, CPA. For which year(s) should Jones obtain written representations from these two individuals?

Answer 5

Year 1 = Yes

Year 2 = Yes

AU-C 580 states that if current management was not present during all periods reported upon, the auditor should nevertheless obtain written representations from current management on all such periods.

Question 6

Which of the following expressions most likely would be included in a management representation letter?

Answer 6

No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements.

Why?

Auditors obtain management’s assurance in the representation letter that no significant events occurred subsequent to the balance sheet date that would require adjustment and/or disclosure.

Question 7

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

Answer 7

Auditor’s report.

Question 8

Which of the following auditing procedures is ordinarily performed last?

Answer 8

Obtaining a management representation letter.

Question 9

Because of the pervasive effects of laws and regulations on the financial statements of governmental units, an auditor should obtain written management representations acknowledging that management has

Answer 9

Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.

Note:

Auditors should consider obtaining additional representations from management acknowledging that (1) management is responsible for the entity’s compliance with laws and regulations and (2) management has identified and disclosed to the auditor all laws and regulations that have a direct and material effect on the financial statements.

Question 10

“There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial statements.” The foregoing passage is most likely from a

Answer 10

Management representation letter.

Question 11

Of which of the following matters is a management representation letter required to contain specific representations?

Answer 11

Information concerning fraud by the CFO.

Note:

Auditors must obtain a representation that those signing the letter have no knowledge of fraud or suspected fraud committed by:

(1) management,
(2) employees who have significant roles in internal control, or
(3) others where the fraud could have a material effect on the financial statements.

Question 12

Which of the following matters most likely would be included in a management representation letter?

Answer 12

A confirmation that the entity has complied with contractual agreements.

Question 13

When considering the use of management’s written representations as audit evidence about the completeness assertion, an auditor should understand that such representations

Answer 13

Complement, but do not replace, substantive procedures designed to support the assertion.

Question 14

Which of the following matters would an auditor most likely include in a management representation letter?

Answer 14

The completeness and availability of minutes of stockholders’ and directors’ meetings.

Question 15

An auditor should obtain written representations from management concerning litigation claims and assessments. These representations may be limited to matters that are considered either individually or collectively material, provided an understanding on the limits of materiality for this purpose has been reached by

Answer 15

Management and the auditor.

Question 16

Which of the following statements ordinarily is included among the written client representations obtained by the auditor?

Answer 16

Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.

Question 17

In obtaining written representations from management, materiality limits ordinarily would apply to representations related to

Answer 17

Amounts concerning related-party transactions.

Note:

related-party transactions are so limited by the professional standards. That standard’s approach is that, unless stated otherwise, representations may be limited to those that are considered material to the financial statements.

Question 18

To which of the following matters would materiality limits not apply in obtaining written management representations?

Answer 18

The availability of minutes of stockholders’ and directors’ meetings.

Why?

Materiality considerations do not apply to management’s acknowledgment of its responsibility for fair presentation of financial statements, the availability of all financial records, the completeness and availability of all minutes and meetings of stockholders, directors, and committees of directors, and communication from regulatory agencies. AU-C 580 discusses client representations.

Question 19

For which of the following matters should an auditor obtain written management representations?

Answer 19

Management’s compliance with contractual agreements that may affect the financial statements.

Question 20

Statements ordinarily is included among the written client representations made by the chief executive officer and the chief financial officer?

Answer 20

• “There are no unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed.”
• “We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.”
• “No events have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in, the financial statements.”

Question 21

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

Answer 21

Refuses to furnish a management representation letter to the auditor.

Question 22

Hall accepted an engagement to audit the year 1 financial statements of XYZ Company. XYZ completed the preparation of the year 1 financial statements on February 13, year 2, and Hall began the audit work on February 17, year 2. Hall completed gathering sufficient appropriate evidence on the audit work on March 24, year 2, and and released the audit report on March 28, year 2. The client’s representation letter normally would be dated

Answer 22

March 24, year 2. This answer is correct because the management representation letter should be dated no earlier than the date of the auditor’s report and is normally the same date as the auditor’s report. The auditor’s report is dated when sufficient appropriate audit evidence has been obtained, March 24, year 2, in this case.