Scope and objectives
The auditing standards that deal with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance. Written representations are statements provided by management to confirm certain matters or to support other audit evidence. While written representations are an important source of audit evidence, they do not provide sufficient appropriate audit evidence on their own, and the auditor must obtain other audit evidence to support the conclusions on which the audit opinion is based.
The objectives of the auditor in obtaining written representations are to support other audit evidence relevant to the financial statements, respond appropriately to written representations provided by management and those charged with governance, and ensure that management and those charged with governance have fulfilled their responsibility for the preparation of the financial statements and the completeness of the information provided to the auditor.
The standard is effective for audits of financial statements for periods beginning on or after April 1, 2009. If management modifies or does not provide the requested written representations, it may alert the auditor to the possibility that one or more significant issues may exist. Furthermore, a request for written representations in many cases may prompt management to consider such matters more rigorously, thereby enhancing the quality of the representations.
Management from Whom Written Representations Requested
Written representations are statements made by management that provide audit evidence of management’s acknowledgement and understanding of its responsibilities in the preparation and presentation of the financial statements. The auditor should request written representations from those responsible for the preparation and presentation of the financial statements, which is typically management, but may also include others such as those charged with governance or individuals with specialized knowledge.
The auditor should request a written representation from management confirming that it has fulfilled its responsibility for the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation, as set out in the terms of the audit engagement. The auditor should also obtain written representations about the appropriateness of accounting policies and the recognition, measurement, presentation, or disclosure of certain matters, such as plans or intentions that may affect the carrying value or classification of assets and liabilities, liabilities both actual and contingent, title to or control over assets, liens or encumbrances on assets, assets pledged as collateral, and aspects of laws, regulations, and contractual agreements that may affect the financial statements, including non-compliance.
In addition, the auditor may ask management to reconfirm its acknowledgement and understanding of its responsibilities in the terms of the audit engagement, particularly when those who signed the terms of the audit engagement on behalf of the entity no longer have the relevant responsibilities, the terms of the audit engagement were prepared in a previous year, there is any indication that management misunderstands those responsibilities, or changes in circumstances make it appropriate to do so. Such reconfirmation of management’s acknowledgement and understanding of its responsibilities is not made subject to the best of management’s knowledge and belief.
Information Provided and Completeness of Transactions
The auditor should request written representations from management that all relevant information and access have been provided to the auditor as agreed in the terms of the audit engagement, and that all transactions have been recorded and are reflected in the financial statements.
SA 580 also notes that there may be other situations where the auditor determines it is necessary to obtain additional written representations from management to support other audit evidence or specific assertions in the financial statements.
The auditor may also need to request a written representation from management that they have communicated all deficiencies in internal control of which management is aware.
When evaluating management’s judgments and intentions, the auditor may consider requesting written representations from management about specific assertions in the financial statements. For example, if the intent of management is important to the valuation basis for investments, the auditor may need a written representation from management about its intentions. However, these written representations do not provide sufficient audit evidence on their own.
Finally, SA 580 notes that the auditor may establish a threshold for material misstatements and communicate this to management for the purposes of the requested written representations.
Date of and Period(s) Covered by Written Representations
Written representations are statements provided by the entity’s management to the auditor to confirm the completeness and accuracy of the financial statements and related disclosures.
The date of the written representations should be as close as possible to, but not after, the date of the auditor’s report on the financial statements, and they should cover all periods referred to in the auditor’s report.
The written representations should be in the form of a representation letter addressed to the auditor, and if there are public statements about management’s responsibilities required by law or regulation, the auditor may determine that such statements can provide some or all of the required representations. However, a formal statement of compliance or approval is not a substitute for the requested written representations.
If the auditor has concerns about the competence, integrity, ethical values, or diligence of management, or about its commitment to or enforcement of these, the auditor must determine the effect that these concerns may have on the reliability of the written representations and the overall audit evidence. If the written representations are inconsistent with other audit evidence, the auditor must attempt to resolve the matter, and if it remains unresolved, the auditor must reconsider the assessment of management’s reliability and determine the effect on the overall audit evidence.
Overall, the purpose of the written representations is to provide the auditor with additional evidence to support their audit opinion on the financial statements.
The Application Section of ISA 580 deals with the requirements of the standard and the premise related to management’s responsibilities that may give rise to additional written representations. While the Preface to the Standards on Quality Control, Auditing, Review, Other Assurance, and Related Services emphasizes that the standards apply equally to all entities, irrespective of their form, nature, and size, the specific reference to public sector entities has been removed.
However, management responsibilities in non-public sector entities may also give rise to additional representations, and therefore, the need for additional representations has been retained in ISA 580 for all entities.
Quiz: Written Representations
1. True or False: Written representations alone can provide sufficient audit evidence to support the audit opinion.
2. Who should provide written representations in the auditing process?
a) External auditors
d) Regulatory authorities
3. What is the purpose of obtaining written representations?
a) To shift responsibility from the auditor to management
b) To support other audit evidence relevant to the financial statements
c) To replace the need for substantive testing
d) To assess the competence of th
Answer:b) To support other audit evidence relevant to the financial statements
4. When should the date of the written representations be?
a) Before the start of the audit engagement
b) After the issuance of the auditor’s report
c) As close as possible to the date of the auditor’s report
d) At the discretion of the management
5. What form should the written representations take?
a) Verbal statements during a meeting
b) Email correspondence
c) Representation letter addressed to the auditor
d) Public statement on management’s responsibilities
6. True or False: Public statements about management’s responsibilities can substitute for the required written representations.
7. What should the auditor do if there are concerns about the competence or integrity of management?
a) Immediately terminate the audit engagement
b) Consult with legal counsel
c) Assess the effect on the reliability of written representations and overall audit evidence
d) Conduct an internal investigation within the auditor’s firm
8. Written representations are obtained to ensure:
a) The accuracy of the financial statements
b) The independence of the auditor
c) The completeness of audit procedures
d) Management’s fulfilment of its responsibilities
9. True or False: Written representations are the primary source of audit evidence in an audit engagement.
10. Written representations obtained from management are important in the audit process because they:
a) Confirm the auditor’s findings
b) Serve as the primary source of audit evidence
d) Shift the responsibility of the audit to management
11. Written representations should cover which of the following aspects?
a) Management’s acknowledgement of its responsibilities
b) Financial reporting framework compliance
c) Disclosure of plans or intentions affecting asset valuation
d) All of the above
12. True or False: Written representations are only required from management and not from those charged with governance.
13. Which of the following matters may be covered in written representations?
a) Accounting policies
b) Laws and regulations affecting the financial statements
c) Deficiencies in internal control
d) All of the above
14. In what situations might the auditor need to obtain additional written representations from management?
a) When there is a change in management personnel
b) When there are indications of management misunderstanding their responsibilities
c) When there are changes in circumstances that impact the audit
d) All of the above
15. The date of the written representations should be:
a) After the date of the auditor’s report
b) As close as possible to the date of the auditor’s report
c) Before the start of the audit engagement
d) Irrelevant to the audit process
16. True or False: Written representations should be in the form of a representation letter addressed to the auditor.
17. Can public statements about management’s responsibilities substitute for written representations?
a) Yes, always
b) No, never
c) Only in specific circumstances
d) It depends on the regulatory requirements
18. If the auditor has concerns about the competence or integrity of management, they should:
a) Exclude written representations from the audit process
b) Request additional written representations from management
c) Notify regulatory authorities immediately
d) Disengage from the audit engagement
19. The overall purpose of obtaining written representations is to:
a) Ensure the auditor’s independence
b) Shift the responsibility of the audit to management
c) Provide the auditor with additional evidence to support the audit opinion
d) Avoid the need for substantive testing
20. True or False: Written representations are a substitute for obtaining other forms of audit evidence.