ISA 580 - WRITTEN REPRESENTATIONS Flashcards
ISA 580
ISA 580
WRITTEN REPRESENTATIONS
The auditor’s write the contents of the letter and give to the directors to write on company letterhead because directors are not familiar with requirements of ISA 580!
1/ Reliability of written representations (SM)
S- Signed by management: CEO & FD. (“Management” who are signing the letter must have been assessed by the auditor as being competent, being persons of integrity & have exercised due care in the performance of their work)
M - Minuted at board meeting.
2/ Written representations as EVIDENCE (CROW)
C- Corroborated by other evidence or at least by the auditor’s understanding of the matter when corroborating evidence is not realistically expected to be available (as in the case of “management intent”)
R - Received before audit report signed.
O - On its own, cannot be accepted. WR to support other evidence obtained.
W - Wording must not be ambiguous.
3/ CONTENT / PURPOSE (SM) - Letter has 2 parts
S - Specific representation
- To support areas of subjective judgement
- To confirm management intent
M - Management responsibility for FS & audit
ISA 580
SAAE
1/ Other evidence + L of R = SAAE
2/ Auditors understanding of the matter + L of R = SAAE
3/ L of R on its own ≠ SAAE
According to ISA 580 Written Representations, written representations can provide necessary audit evidence, BUT they
DO NOT provide sufficient appropriate audit evidence ON THEIR OWN about any of the matters with which they deal.
The fact that management provides reliable written representations does not affect the nature or extent of other audit evidence that the auditor obtains.
Written representations should therefore support other evidence obtained by the auditor.
ISA 580
Implications for the audit report
QUALIFIED opinion – Limitation of scope
Management refuses to provide certain SPECIFIC representation.
Representations INCONSISTENT with other evidence obtained.
DISCLAIMER of opinion – Limitation of scope
Management refuses to confirm they have fulfilled their RESPONSIBILITIES for FS & the audit.
Where the auditor concludes that there is sufficient doubt about the integrity of management such that the written representations in respect of their RESPONSIBILITIES are not reliable.
ISA 580
Management’s Responsibilities
L of R has two parts - PART 1
Management’s Responsibilities
(To receive acknowledgement that management have fulfilled their responsibilities in respect of FS & the audit)
▪ Confirmation that management have fulfilled their responsibilities to prepare the FS in accordance with the IFRF (Identified Financial Reporting Framework).
Confirmation that all transactions have been recorded in the accounting records.
Confirmation that access has been granted to all information & explanations
“The PRIMARY purpose of obtaining Written Representation is to get management to acknowledge their responsibility and accountability for the FS.”
ISA 580
Specific Representations
L of R has two parts - PART 2
Specific representations required by other ISAs
Confirmation that all information in relation to fraud or suspected fraud that management is aware of been disclosed.
Confirmation that all known instances of NOCLAR or suspected NOCLAR have been disclosed to auditor.
Confirmation that identity of the entity’s related parties and transactions of which we are aware have been disclosed.
Confirmation that all events subsequent to the date of the financial statements have been adjusted or disclosed.
Confirmation that significant assumptions used in making accounting estimates, including Fair Values) are reasonable.
Confirmation that the effects of uncorrected misstatements are immaterial.
Specific representations relating to financial statements - GENERAL
Confirmation that all of the company’s accounting policies selected & applied are appropriate
Confirmation that the company has satisfactory title to all assets & there are no liens or encumbrances on the company’s assets except those already disclosed
Confirmation that all liabilities, both actual and contingent , have been disclosed in the financial statements
Specific representations relating to financial statements - areas of judgement
▪ Confirmation of the expected outcome of legal claims & that the amount of damages has been agreed at $XXX
Specific representations relating to FS - where knowledge is confined to management / management’s intent
Confirmation that the company will continue to operate in the foreseeable future & the directors have no plans to abandon lines of product or other plans or intentions that will result in any excess or obsolete inventory (ISA 570)
Confirmation that assets will continue to be used & therefore there is no impairment
Confirmation that assets will continue to be used over its stated life & therefore depreciation rates are reasonable.
Confirmation that development costs that have been capitalised will provide future benefits & therefore do not require any write down
Confirmation that all inventory at the year-end will be sold off at normal selling prices & there is no need to state inventory at NRV
