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Can someone tell me or discuss here what kind of Audit opinion may be issued when managements are reluctant to support their statements with a written representation? Please be specific and consider whether based on the NATURE of matter there could be any diference between the audit opinion. And consider the UNCERTAINTY factor as well. (For example Going concern and Estimated Receivables or Warranty all have uncertainy factor in them.)
In the Q5 F8 Audit and Assurance exam yesterday the matter was about Warranty( and it is a kind of Estimation like Going concern assessment) position and it was consiered Material, but management were reluctant to give a representation. So what kind of OPINION could be expeted , please Give the basis to modification as well.
I will appreciate any thorough reply .
Thank you.Management unwilling to provide a representation letter, means auditor unable to obtain a sufficient of Audit Evidence. And since it was considered material, so auditor will qualified the audit opinion, “EXCEPT FOR” will included. Well, some said Disclaimer Opinion. But it was wrong due to only ONE item mentioned and NOT many, so it cant be a pervasive.
@swgiant said:
Management unwilling to provide a representation letter, means auditor unable to obtain a sufficient of Audit Evidence. And since it was considered material, so auditor will qualified the audit opinion, “EXCEPT FOR” will included. Well, some said Disclaimer Opinion. But it was wrong due to only ONE item mentioned and NOT many, so it cant be a pervasive.Thank you for reply. But i would like you discuss further, for example i read in technical article regarding ISA 240 redrafted, it states that wherever management DELIBREATELY do not make a DISCLOSURE or intentionally alter accounting policy then this should be regarded as FRAUD.
SO could we consider DELIBREATELY not giveing WRITTEN REPRESENTATION on their own made estimated values as A FRAUDULENT action. IF YES, then the opinion could be ADVERSE one.. what you think? i will appreciate any REPLIES by anyone. because AUDIT OPINION is a very important issue. THANK YOU.Well, perhaps you misunderstanding the underlying concept of QUALIFIED AUDIT OPINION.
I suggest you read the OT F8 notes, page 21. Once you totally understood and has a CLEAR SHARP picture in your mind, then re-read the technical article. Then you will understand why adverse opinion will NOT apply in the case study of Q5.
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it was not fraudulent. Management did not want to provide written representation merely because the basis of estimation and judgement were consistent with prior years. It is not pervasive as other than written representation is not the only audit evidence in the scenario above. Why? Auditor has performed Analytical Procedures (comparison of this and prior year estimation) and concluded that it was consistent and nothing abnormal. Written representation is just to strengthen the evidence collected via analytical procedures. Apart from that, auditor could seek help for auditor’s expert also. In a nutshell, there are still many audit procedures you can use to collect audit evidence. Written representation is just the last solution if there’s no sufficient appropriate audit evidence available. Therefore, disclaimer opinion is not appropriate
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however due to time constraints, I doubt I wrote that detailed during exam. I might skipped the explanation for other audit evidence. I cant recalled what I actually wrote, but I clearly remember what exactly is my interpretation of the scenario
Thank you for your discussion.i appreciate whatever you wrote here. However the audit opinion is very important, but what i thought it was the following: in makeing fraud evrything is tought ahead of time and acted in a very sophisticated manner so that even External auditors may not be able to find its existence. The fact that the previous years calculation was checked and it turned to be true, doesn’t consequently mean that management estimations are free from bias in this year. In the scenario it was written that management ” FEELS ” that the estimated value is correct. Well if they felt that their estimation was correct then why they refused to support their own made estimations with additional written evidence. If someone states something then as a proof to that a wriiten representation just could confirm its truthness. So if management are reluctant to confirm their own statements why external auditors should bear the consequences of its confirmation in the form of audit OPINION? !!!!
In case of SOPHISTICATED FRAUDULENT accounting environment, every action or inaction on MANAGEMENT part should be considered with SCEPTICISM,beause it could be indicating the possibility of FRAUD. SO this was my point.
What regards the audit opinion based on the Technical article data, it could be DISCLAIMER of opinion since the MATTER was both MATERIAL and PERVASIVE.
But i considered the existence of FRAUD, because managerment said they ” FEEL” their estimations are correct but latter refused to give Written representation. Hence no matter the prvious years calculations and the rest…Of course because of time pressure, during the exam i didn’t mention in details as, i wrote here.
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