Representations by Management as Audit ERepresentations by Management as Audit Evidence

Representations by Management as Audit Evidence

9 The auditor shall endeavour to obtain written representations from management on matters material to the financial report, when other sufficient appropriate audit evidence cannot reasonably be expected to exist.

10 The possibility of misunderstandings between the auditor and management is reduced when oral representations are confirmed by management in writing. Matters that might be included in a letter from management or in a confirmatory letter to management are contained in the example of a management representation letter in Appendix 1 to this Auditing Standard.

11 Written representations requested from management may be limited to matters that are considered either individually or collectively material to the financial report. Regarding certain items it may be necessary to inform management of the auditor’s understanding of materiality.

12 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 error; and

(b) it believes the effects of those uncorrected financial report misstatements aggregated by the auditor during the audit are immaterial, both individually and in the aggregate, to the financial report taken as a whole. A summary of such items shall be included in or attached to the written representations.

13 During the course of an audit, management makes many representations to the auditor, either unsolicited or in response to specific enquiries. When such representations relate to matters which are material to the financial report, the auditor ordinarily needs to:

(a) seek corroborative audit evidence from sources inside or outside the entity;

(b) evaluate whether the representations made by management appear reasonable and consistent with other audit evidence obtained, including other representations; and

(c) consider whether the individuals making the representations can be expected to be well informed on the particular matters.

14 Representations by management cannot be a substitute for other audit evidence that the auditor could reasonably expect to be available. For example, a representation by management as to the cost of an asset is not a substitute for the audit evidence of such cost that an auditor would ordinarily expect to obtain. If the auditor is unable to obtain sufficient appropriate audit evidence regarding a matter which has, or may have, a material effect on the financial report, and such audit evidence is expected to be available, under ASA 701 Modifications to the Auditor’s Report, this will constitute a limitation on the scope of the audit, even if a representation from management has been received on the matter.