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Hi, please may I know when a representation letter is required? What can be included and cannot be included in the representation letter (as it is not a truly reliable source of audit evidence)?
Thank you.
Welcome to my AAA forum. Please see our short chapter 28 in the notes https://opentuition.com/acca/aa/acca-audit-assurance-aa-notes for explanation and example. By all means ask if still not sufficiently clear to you.
Hi, I have read through the Chapter 28 (Written Representation). That means in short, written representation is only prepared for events that involves “assumptions” and high “subjectivity”, not excluding uncertain management plans, potential litigation, fraud, subsequent events, management’s intentions, and going concern assessment?
Also, in the sentence “Management representations cannot substitute for other audit evidence or performing audit procedures in accordance with ISAs.” Please may I know what does this mean?
Thank you.
It simply means that written representations are not a substitute for other …. better …. evidence. So you can’t ask management to assert that inventory quantities exist as an alternative to attending a physical inventory count.
Oh I see.. which means that if management cannot provide certain documentation to prove that a transaction is genuine (perhaps they have lost the documentation), the auditors will need to disclaim the opinion (instead of asserting the transaction via representation letter as an alternative)?
Thank you.
ABSOLUTELY! (though one transaction is unlikely to have a pervasive effect so would be qualified opinion if material, not disclaimer).
A written rep can NEVER replace “other evidence that could reasonably be expected to exist”. So it’s use is limited to where there isn’t other evidence and generally relates to completeness assertions. E.g. management asserts that there are “no events after the reporting date” that they (management) are aware of that would require adjustment/disclosure “other than” (those they have disclosed to the auditor).
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