ASA 240 - The Auditor’s Responsibility to Consider Fraud in an Audit of a Financial Report - April 2006
Management RepresentationsManagement Representations
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Management Representations
96 The auditor shall endeavour to obtain written representations from management that:
(a) it acknowledges its responsibility for the design and implementation of internal control to prevent and detect fraud;
(b) it has disclosed to the auditor the results of its assessment of the risk that the financial report may be materially misstated as a result of fraud;
(c) it has disclosed to the auditor its knowledge of fraud or suspected fraud affecting the entity involving:
(i) management;
(ii) employees who have significant roles in internal control; or
(iii) others where the fraud could have a material effect on the financial report; and
(d) it has disclosed to the auditor its knowledge of any allegations of fraud, or suspected fraud, affecting the entity’s financial report communicated by employees, former employees, analysts, regulators or others.
97 Because of the nature of fraud and the difficulties encountered by auditors in detecting material misstatements in the financial report resulting from fraud, it is important that, in accordance with the requirements of paragraph 96 of this Auditing Standard, the auditor is required to endeavour to obtain a written representation from management confirming that it has disclosed to the auditor the results of management’s assessment of the risk that the financial report may be materially misstated as a result of fraud and its knowledge of actual, suspected or alleged fraud affecting the entity.
98 ASA 580 Management Representations, provides guidance on obtaining appropriate representations from management in the audit. In addition to acknowledging its responsibility for the financial report, it is important that, irrespective of the size of the entity, management acknowledges its responsibility for internal control designed and implemented to prevent and detect fraud. In the event management is unable to or refuses to provide a written representation, under ASA 580, the auditor needs to consider the implications of the refusal for the auditor’s report.