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Suppose a payroll clerk was dismissed after it was discovered that they had carried out a number of fraudulent transactions.
Can i give a written representation to management concerning whether all fraudulent transactions are known as my audit response?
Welcome back to my forum! That’s a good question. Let me clarify a couple of points …
Written representations are not “to” management – the auditor writes the representations needed for management to sign – so representations are “management’s representation” i.e. “from” management.
Then the representation is not that fraudulent transactions “are known” but that those that are known (or suspected) have been disclosed to the auditor – it’s a good example of a representation relevant to the completeness assertion.
This is the illustrative wording from Appendix 2 of ISA 580 Written Representations of three representations concerning fraud:
• We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud. (ISA 240)
• We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the entity and involves:
o Management;
o Employees who have significant roles in internal control; or
o Others where the fraud could have a material effect on the financial statements. (ISA 240)
• We have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting the entity’s financial statements communicated by employees, former employees, analysts, regulators or others. (ISA 240)
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