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Hi sir,
may I know is there any practical difficulties for obtaining the letter of representation, debtor confirmation and inventory confirmation letter?Is there any alternative audit evidence can be used to replace the letter of representation?
Thanks sir
There shouldn’t be practical difficulties in obtaining a letter of representation (from management). They may be practical difficulties in obtaining direct confirmations (from third parties). For example, there may be a problem of timing when obtaining confirmation from overseas customers.
In terms of audit evidence, the letter of representation provides evidence where other sufficient appropriate audit evidence does not or cannot reasonably be expected to exist. For example, if the auditor needs management to confirm a plan or intention that is material to the financial statements, only management can provide that evidence – in the absence of which there would be no alternative. Thus if management does not provide a necessary representation there would be insufficient evidence (and the audit opinion would be modified accordingly).
How about if the management refuse to sign the letter of representation? what the auditors can do?
may I know the debtor and stock confirmation will be written on client paper or auditor paper? is it the auditor send the confirmation on behalf of the client?If the management refuses to sign the letter, then that is a limitation of scope and generally, the only reasonable course is for the auditor to resign (don’t even think about offering no opinion).
Management should expect the auditor to ask for a letter of representation as this is explained in the terms of engagement. If management’s refusal is because it considers a representation to be wrong, the matter may be resolved by the auditor’s examination of information that supports that belief (and changing the representation accordingly). Resignation is the auditor’s “last resort” – if the preconditions of the audit were present when the auditor accepted the audit the audit opinion should be qualified (“except for”) or disclaimed – depending on whether the matter is pervasive. If the preconditions of the audit were not present, the audit should not have been accepted.
For direct confirmations – yes, the auditor will control all the “paper work”.
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