Management Representation to Auditor and its Reliability
As part of the audit process, the management provides written representations to confirm certain matters in connection with the audit.
Required:
(a) State the matters that you will consider as an auditor while assessing the reliability of representations made by the management.
(b) Describe the course of action available to an auditor if the management refuses to provide representation on a particular issue.
(a) Matters that will be considered as an Auditor while assessing the reliability of representation made by the management:
When the representations relate to matters material to the financial statements:
- Whether the representations appear reasonable and consistent with other audit evidence obtained.
- Whether the individuals making them can be expected to be well informed on such matters.
- Integrity of those making the representations.
- Accuracy of representations made in the past.
- Corroborate audit evidence from sources inside or outside the entity.
(b) Auditor’s course of action if management refuse to provide you with a management representation on a particular issue:
- If management does not provide one or more of the requested written representations, the auditor shall:
- Evaluate whether sufficient, appropriate audit evidence can be obtained from other sources;
- If sufficient appropriate audit evidence cannot be obtained from other sources than this will constitute a scope limitation and the auditor should express a qualified opinion or disclaimer
- Re-evaluate the integrity of management and evaluate the effect that this may have on the reliability of representations (oral or written) and audit evidence in general; and
- Consider possible implications that the refusal may have on the auditor’s
- Re-assess the continuation of engagement with the audit client
Management Representation
One of the objectives of obtaining a written representation from management is to ensure that the management knows and acknowledges its responsibility for the preparation of the financial statements and for the completeness of the information provided to the auditor.
Required:
Specify the situations which may create doubts as to the reliability of written representations. What course of action would the auditor take in such a situation
Under the following situations, the auditor would have doubt as to the reliability of written representation:
(a)When the auditor has concerns about the competence, integrity, ethical values or diligence of management, or about its commitment to or enforcement of these.
(b)When written representations are inconsistent with other audit evidence obtained.
Course of action in situation (a)
The auditor shall determine the effect that such concerns may have on the reliability of representations and audit evidence in general.If the auditor concludes that the risks related to management representations on the financial statements is such that an audit cannot be conducted, the auditor may consider withdrawing from the engagement
Course of action in situation (b)
The auditor may consider whether the risk assessment remains appropriate and, if not, revise the risk assessment and determine the nature, timing and extent of further audit procedures to respond to the assessed risks.If the matter remains unresolved, the auditor shall reconsider the assessment of the competence, integrity, ethical values or diligence of management, or of its commitment to or enforcement of these, and shall determine the effect that this may have on the reliability of other representations and audit evidence in general.
If the auditor concludes that the written representations are not reliable, the auditor shall take appropriate actions, including determining the possible effect on the opinion in the auditor’s report.
Evaluation of Management Representation has been discussed through Written Representation Evaluation by Auditor. Auditorforum.com is keen to know your feedback and let us know about your queries.
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