MANAGEMENT REPRESENTATIONS

SCOPE Deals with the auditors responsibility to obtain representation from management Written representations are necessary information required by the auditor Representations made by the management to the auditors during the course of audit either unsolicited or a response to a particular query

Written representations are more reliable than oral representations and request of the written representations by the auditor generally prompts the management to consider the matter carefully. Representations are generally requested from those who are responsible for the financial statements, more often they are the CEO and CFO. (wordings generally include the terms to the best of the knowledge and belief)

USE OF MANAGEMENT REPRESENTATION AS AUDIT EVIDENCE Written representations are necessary information, however they do not provide sufficient audit evidence on which to base the audit opinion. The fact that management has provided a written representation regarding the cost of an Asset does not mean that it is sufficient appropriate audit evidence, accordingly the auditor has to perform audit procedures to verify the cost of an asset. (procedure could be inspection of an invoice) Responsibility of the FS and completeness of the information provided to the auditor Responsibility of the presentation of FS is of the management and the auditor should obtain written representation from the management that they believe they have fulfilled their responsibility regarding the financial statements and also they have provided the complete information to the auditor and access to all information as agreed in the terms of engagement. Management should also provide a representation that all transactions, events have been recorded in the Financial statements.

The auditor may want management to provide representations on the following Appropriate selection of accounting policies Matters such as (contingent liabilities, plans that may affect the carrying value of assets and liabilities , compliance with laws and regulations) have been reflected in accordance with the applicable financial reporting Framework Management has disclosed the deficiencies in the internal control to the auditor

DATE OF THE MANAGEMENT REPRESENTATION Date of the management representation shall be as near as practicable to the date of the auditors report Auditor may request a written representation on the specific matter during the course of an audit (example of a bank branch audit)

FORM OF THE REPRESENTATION LETTER

It should be in a letter form addressed to the auditor

Concerns of the auditor about the integrity, competence, commitment of the management will have an effect on the reliability of the management representation

CONSISTENCY OF THE WRITTEN REPRESENTATION WITH OTHER REPRESENTATIONS/AUDIT EVIDENCE Example of the audit of a hotel where the newspapers used during the audit were not consistent with the number of rooms occupied (although the policy of the hotel was to provide a complimentary newspaper to every room) If the written representation is not consistent with other representation or audit evidence, the auditor should try and resolve. (in the example above the auditor discussed the matter with management and resolved the issue) If the inconsistency remains unresolved the auditor should reconsider the integrity, competence, commitment of the management. This could also have an impact on the audit report. REQUESTED WRITTEN REPRESENTATION NOT PROVIDED If the representation is not provided the auditor shall Discuss the matter with the management Reevaluate the integrity of the management Take appropriate action including the impact on the audit report (or withdrawal from the audit)