Written Representations
1 Introduction
ISA 580 requires auditors to obtain written representation from management and, where appropriate, TCWG. Written representations are necessary information that the auditor requires and are audit evidence. However, although they provide necessary audit evidence they are not sufficient audit evidence on their own on any of the matters with which they deal. Nor do written representations affect the nature and extent of other audit evidence that the auditor needs to obtain.
2 Purpose
The objectives of the auditor are to obtain written representations that:
Management /TCWG acknowledge their responsibility for the preparation of the the financial statements and have provided all relevant information to the auditor.
All transactions have been recorded.
These representations concerning management's responsibilities are required by ISA 580. In addition to other representations that may be required by other ISAs (see section 3 below), an auditor may request them to support other audit evidence relevant to one or more specific financial statements assertions.
The written representations should be dated as near as possible to, but not after, the date of the auditor's report.
In particular, letters of representation are important where it could be difficult for the auditors to make sure that certain problems do not exist, or that management does not have certain intentions or plans. If you don’t know about a liability it can be difficult to discover. It can also be difficult to discover management plans if they have now been discussed at board meetings and recorded in the board minutes.
Management representations cannot substitute for other audit evidence or performing audit procedures in accordance with ISAs.
Written representation alone cannot provide sufficient appropriate audit evidence for an assertion. If, for example, management's intentions provide necessary audit evidence (eg for the classification of financial instruments), the auditor must consider:
management's past history in carrying out intentions
the reasons for management's intention
management's ability to pursue its intentions
other information (or lack thereof) which might contradict management's intentions.
If one or more requested representations are not provided then the auditor must re-evaluate the integrity of management and assess their proposed audit opinion. If the required representations (about management's responsibilities) are not provided or not reliable, the auditor must disclaim an opinion.
3 Examples
Here are examples of subject-matter specific written representations that are required by ISAs other than ISA 580:
Any knowledge or suspicion of fraud has been disclosed to the auditor (ISA 240).
Similarly, all known instances of actual or suspected NOCLAR have been disclosed to the auditor (ISA 250).
All known actual or possible litigation and claims has been disclosed to the auditor and accounted for/disclosed in accordance with financial reporting requirements (ISA 501).
Belief that significant assumptions used in making accounting estimates are reasonable (ISA 540).
All known related parties, relationships and transactions have been disclosed to the auditor and accounted for/disclosed in accordance with financial reporting requirements (ISA 550).
All events occurring subsequent to the date of the financial statements have been adjusted or disclosed as required (ISA 560).
Plans for future actions relating to management’s going concern assessment and the feasibility of these plans (ISA 570).
You should appreciate the necessity of these representations to obtain sufficient appropriate evidence about the assertion of completeness, in particular.