WRITTEN REPRESENTATIONS AND FINAL STUFF Flashcards
WHAT is written representation?
it is a written statement by management given to the auditor to confirm certain matters or to support other audit evidence
purpose is to make management confirm that:
what written representations are necessary/ required?
required by IAS:
written representations from management that:
-it has fulfilled the responsibility of preparation for FS
-to support audit evidence relevant to FS, or specific assertions if deemed necessary by the auditor, or required by specific ISAs
-that the auditor has been provided with all relevant info
-that all transactions have been recorded and reflected in FS
what are the matters on which written representations are commonly obtained but not compulsory?
reps may be used when more reliable forms of evidence are not available, particularly in relation to matters requiring managements judgement or knowledge, eg:
-whether selection and application of accounting policies is appropriate
-whether the following have been measured, disclosed , presented in accordance with financial reporting framework:
1) plans or intentions that may affect carrying value or classifications of assets or liabilities
2) liabilities, both contingent and actual
3) title to or control over assets
4) aspects of laws or contracts that may affect FS, including non compliance
-that the directors have communicated all deficiencies in internal control to auditor
-specific assertions about classes of transactions, accounts, balances and disclosures requiring management judgement.
what is the process for obtaining a written rep from management??
in practice, auditor will draft the wording of the written representation letter but it must be printed on clients headed paper, addressed to auditor and signed by senior management member of client
signer must have appt responsibilities of FS and knowledge of matters concerned (normally CEO AND CFO)
-date of letter shud be same as the date FS are authorised, it must be obtained and signed before auditor report is finalised
how reliable are written representations?
they are client generated so may be subject to bias.so it is potentially an unreliable form of evidence.
auditor must consider the reliability in terms of:
-inconsistencies with other forms of evidence
-concerns about the competence, integrity, ethical values, or diligence of management
what steps must auditor take if management refuses to provide written evidences
-discuss why they are refusing
-re evaluate their integrity and reliability of other evidence
-consider impact on auditor’s report
what steps must auditor take if written rep is inconsistent with other audit evidence?
-consider reliability of representations in general
-reconsider the initial risk assessment
-consider the need to perform further audit procedures
if there are concerns about management integrity:
-consider if engagement can be conducted effectively
-if they conclude that it cannot, withdraw from engagement, where permitted by law
-if not permitted to withdraw, consider impact on auditor’s report, it is likely this wud lead to a disclaimer of opinion
why is it important for auditor to do an overall review to ensure SAE has been obtained?
before forming opinion and deciding wording of auditor’s report, the .auditor should conduct an overall review
it is important to ensure that the auditor’s work is up to the mark, and meets quality standards
as part of the review, auditor shud assess that:
-audit work was performed in accordance with professional standards
-significant matters have been raised for further consideration and appt consultations have taken place
-there is a need to revise the nature, timing and extent of work performed.
-the audit evidence gathered is sufficiently appropriate to support the conclusions reached and provide a basis for the audit opinion.
also ensure that initial assessments made at start of the audit r still valid in light of new info and that audit plan has been flexed to meet new circumstances
what procedures shud auditor perform in overall review of SAE?
1- REVIEW FS TO ENSURE:
-compliance with AC standards and local laws disclosure requirements. this is sometimes performed using a disclosure checklist.
-A/C policies are sufficiently disclosed and they r in accordance with A/C treatment in FS
-they reflect the info and conclusions reached during audit
2) PERFORM AP TO CONFIRM THE CONCLUSIONS FORMED DURING AUDIT,
AND TO ASSIST WHEN FORMING AN OVERALL CONCLUSION, to confirm that the FS are consistent with auditor’s understanding of entity
3) review the aggregate of uncorrected misstatements to assess whether a material misstatement rises. if so, discuss potential adjustment with management.
how can an auditor evaluate uncorrected misstatements?
-reassess materiality to see if still appropriate in the circumstances as the level of risk may be deemed higher as a result of managements refusal
-determine whether uncorrected MS either individually or aggregate are material to FS as a whole. if a MS is individually material, it can not be set off by other MSs.
-communicte uncorrected MS to TCWG and explain the affect this will have on audit opinion
-request written representation from M that they believe effect of uncorrected MS is immaterial
explain the significance of uncorrected misstatements
the auditor must consider the impact of misstatements on audit procedures and FS as a whole.
this must be done by:
-accumulate a record of all identified MS unless clearly trivial
-consider if the existence of such MS tells that others may exist, and when aggregated could be material
-if so consider if audit strategy and plan needs to be revised
-communicate all accumulated MS to management on timely basis and request all misstatements are corrected
-if M refuses to correct some or all MS, consider the reasons and take into account when considering if FS are free from MS.
what is the auditor’s report and what are it’s contents?
prepared by the auditor to express the conclusion.
contents are:
1) title (independent auditors report) and addressee (intended user)
2) auditors opinion
3) basis of opinion para
4) key audit matters section
5) additional communications
6) other information section
7) responsibilities of management and auditors
8) report on other legal and regulatory requirements
9) signature, auditor’s address and date
what are the different types of audit opinion and when are they given?
-IF MS or lack of SAE are not material: UNMODIFIED OPINION AND TF VIEW
-IF MS or lack of SAE is material but not pervasive:
MODIFIED- QUALIFIED OPINION (except for…)
-IF MS is material AND pervasive: ADVERSE OPINION (FS dont give TFV)
-IF LACK OF SAE IS MATERIAL AND PERVASIVE: DISCLAIMER - WE DONT GIVE AN OPINION.
Describe what is meant by unmodified opinion:
When there is no material MS in FS, and its concluded it is perpared in accordance with framework, auditor gives unmodified opinion.
it means:
-adequate disclosures
-consistently applied policies
-reasonable estimates
-info is relevant, understandable, reliable, comparable
-terminology used is appropriate
what is meant by pervasive?
a matter is pervasive when its effects are not confined to specific items of the FS, if they are, they could represent a substantial part of the FS,
in related to disclosures, it means it is fundamental to users understanding of FS.
