Management Representations Letters Flashcards
Which of the following statements ordinarily is not included among the written client representations made by the chief executive officer and the chief financial officer?
“Sufficient audit evidence has been made available to the auditor to permit the issuance of an unmodified opinion.”
“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.”
“Sufficient audit evidence has been made available to the auditor to permit the issuance of an unmodified opinion.”
This answer is correct, that is, not included, because while the chief executive officer and the chief financial officers must make information available to the auditor, they do not make a judgment on whether evidence is sufficient.
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
Implemented internal control policies and procedures designed to detect all illegal acts.
Documented the procedures performed to evaluate the governmental unit’s compliance with laws and regulations.
Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.
Reported all known illegal acts and material weaknesses in internal control structure to the funding agency or regulatory body.
Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.
This answer is correct because the professional standards state that the auditor should consider obtaining representations from management that it has identified and disclosed to the auditor all laws and regulations that have a direct and material effect on the determination of financial statement amounts. The section also suggests obtaining a representation that management is responsible for the entity’s compliance with laws and regulations applicable to it.
Which of the following statements ordinarily is included among the written client representations obtained by the auditor?
Management acknowledges that there are no material weaknesses in the internal control.
Sufficient audit evidence has been made available to permit the issuance of an unmodified (unqualified) opinion.
Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.
Management acknowledges responsibility for illegal actions committed by employees.
Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.
The date of the management representation letter should coincide with the date of the
Balance sheet.
Latest interim financial information.
Auditor’s report.
Latest related-party transaction.
Auditor’s report.
The requirement is to determine the proper date for a client’s representation letter. AU-C 580 states that the representation letter should be dated as of the date of the auditor’s report.
A purpose of a management representation letter is to reduce
Audit risk to an aggregate level of misstatement that could be considered material.
An auditor’s responsibility to detect material misstatements only to the extent that the letter is relied on.
The possibility of a misunderstanding concerning management’s responsibility for the financial statements.
The scope of an auditor’s procedures concerning related-party transactions and subsequent events.
The possibility of a misunderstanding concerning management’s responsibility for the financial statements.
The requirement is to identify a purpose of a management representation letter. Answer (c) is correct because a management representation letter is meant to reduce the possibility of a misunderstanding concerning management’s responsibility for the financial statements. Answer (a) is incorrect because reducing audit risk to an aggregate level of misstatement that could be considered material is not a logically sound statement. Answer (b) is incorrect because the management representation letter does not modify an auditor’s responsibility to detect material misstatements. Answer (d) is incorrect because management representation letters are not a substitute for other procedures.
For which of the following matters should an auditor obtain written management representations?
Management’s cost-benefit justifications for not correcting internal control weaknesses.
Management’s knowledge of future plans that may affect the price of the entity’s stock.
Management’s compliance with contractual agreements that may affect the financial statements.
Management’s acknowledgment of its responsibility for employees’ violations of laws.
Management’s compliance with contractual agreements that may affect the financial statements.
The requirement is to identify the matter on which an auditor should obtain written management representations. Answer (c) is correct because written representations are ordinarily obtained on noncompliance with aspects of contractual agreements that may affect the financial statements. Answer (a) is incorrect because auditors do not ordinarily obtain a cost-benefit justification from management related to internal control weaknesses. Answer (b) is incorrect because written representations are not ordinarily obtained on such future plans. Answer (d) is incorrect because management may or may not be responsible for employee violations of laws, and because such a representation is not ordinarily obtained. See AU-C 580 for information on client representations.
Of which of the following matters is a management representation letter required to contain specific representations?
Length of a material contract with a new customer.
Information concerning fraud by the CFO.
Reason for a significant increase in revenue over the prior year.
The competency and objectivity of the internal audit department.
Information concerning fraud by the CFO.
This is correct because 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.
"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 Compliance report. Management representation letter. Letter for an underwriter. Report on internal controls.
Management representation letter.
This answer is correct because the professional standards require that the auditor obtain such a statement in the management representation letter.
Which of the following statements ordinarily is included among the written client representations obtained by the auditor?
Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.
Management acknowledges responsibility for illegal actions committed by employees.
Sufficient audit evidence has been made available to permit the issuance of an unqualified opinion.
Management acknowledges that there are no material weaknesses in the internal control.
Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.
The requirement is to identify the information ordinarily included among the written client representations obtained by the auditor. Answer (a) is correct because AU-C 580 includes information on compensating balances in the list of representations normally obtained. Answer (b) is incorrect because management need not acknowledge a responsibility for employee illegal actions. Answer (c) is incorrect because the auditor, not the client, determines whether sufficient audit evidence has been made available. Answer (d) is incorrect because, for purposes of a financial statement audit, management need not attempt to determine whether material weaknesses in internal control exist.
Which of the following auditing procedures is ordinarily performed last?
Reading of the minutes of the directors’ meetings.
Confirming accounts payable.
Obtaining a management representation letter.
Testing of the purchasing function.
Obtaining a management representation letter.
This answer is correct because a management representation letter should be received and dated as of the last day of fieldwork (the date of the auditor’s report).
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 February 13, year 2. February 17, year 2. March 24, year 2. March 28, year 2.
March 24, year 2.
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.
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
The auditor and the client’s lawyer.
Management and the auditor.
Management, the client’s lawyer, and the auditor.
The auditor independently of management.
Management and the auditor.
This answer is correct because materiality must be determined by management and the auditor. The client’s lawyer only becomes involved when an inquiry has been directed to him/her.
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
Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.
Implemented internal control policies and procedures designed to detect all illegal acts.
Expressed both positive and negative assurance to the auditor that the entity complied with all laws and regulations.
Employed internal auditors who can report their findings, opinions, and conclusions objectively without fear of political repercussion.
Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements.
This answer is correct because, in addition to normal representations, 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.
Which of the following matters would an auditor most likely include in a management representation letter?
Communications with the audit committee concerning weaknesses in internal control.
The completeness and availability of minutes of stockholders’ and directors’ meetings.
Plans to acquire or merge with other entities in the subsequent year.
Management’s acknowledgment of its responsibility for the detection of employee fraud.
The completeness and availability of minutes of stockholders’ and directors’ meetings.
The requirement is to identify the matter that an auditor most likely would include in a management representa-tion letter. Auditors will generally request assurance as to the completeness and availability of minutes of stockholders’ and directors’ meetings. See AU-C 580 for written representations ordinarily obtained by the auditor.
Which of the following management roles would typically be acknowledged in a management representation letter?
Management has the responsibility for the design of controls to detect fraud.
Management communicates its views on ethical behavior to its employees.
Management’s knowledge of fraud is communicated to the audit committee.
Management’s compensation is contingent upon operating results.
Management has the responsibility for the design of controls to detect fraud.
This answer is correct because the professional standards indicate that auditors should obtain representations on management’s acknowledgement of its responsibility for the design and implementation of programs and controls to prevent and detect fraud.
