A written statement by management
provided to the auditor to confirm certain matters or to support other audit
evidence. Written representations in this context do not include financial
statements, the assertions therein, or supporting books and records (ISA-580).
Written representations are
audit evidence and are necessary information to arrive at audit conclusions.
However on their own they can not be relied upon for audit evidence to support
audit conclusions therefore they do not affect the nature and extent of other
audit evidence that is to be obtained by the auditor. It should be obtained
only from management who has responsibility for preparing and presenting
financial statements and is knowledgeable about the relevant matters.
ISA 580 requires the auditor to
request management to provide written representations that it has fulfilled
certain of its responsibilities. It may therefore be appropriate to make
management aware that receipt of such written representations will be expected,
together with written representations required by other ISAs and, where
necessary, written representations to support other audit evidence relevant to
the financial statements or one or more specific assertions in the financial
statements.
The following issues may be
documented in a written representation letter obtained from the management:
- Assessment of risk of fraud by management
- Management’s knowledge of identified or suspected non-compliance with laws and regulations
- Related parties identification by the management
- Consideration of all aggregated uncorrected misstatements to be immaterial
- Assumptions used in making accounting estimates are reasonable
- Consideration of subsequent events by management
- Consideration of all possible matters and contingencies in going concern review
- Any restatement made to correct a material misstatement in prior period financial statements that affect the comparative information.
Recommendation
My recommendation to the
audit team would be to gather a list of issues about which it is appropriate to
require a written representation. During finalization stage of audit, the audit
team should write to the client confirming the issues about which they need a
written representation from the management. The client must formally write the
representation letter including all the issues pointed out along with other
necessary representations, sign it and send it to the auditor. The written representation
should be dated as nearly as possible, but not after, the date of audit report.
