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Instructions
While management and other entity personnel make many statements, or representations, during the course of an audit, whether unsolicited or in response to specific inquiries, the following representations are of particular interest to the auditor:
- written acknowledgement by management of its responsibilities
- Specific written representations of particular assertions, whether from management, those charged with governance or employees with specialised knowledge.
Such representations do not negate the auditor's responsibility to obtain sufficient appropriate audit evidence in support of the audit conclusion and, if required, an audit opinion. The auditor should seek corroborative evidence from inside and outside the entity, and evaluate whether the written representations appear reasonable and consistent with other audit evidence obtained, including other representations. Representations that are to be used as audit evidence should be confirmed in writing and signed.
Written acknowledgement by management of its responsibilities
Representations by management of its responsibilities provide necessary audit evidence about the validity of the premises concerning management's responsibilities, on which basis an audit is conducted.
Responsibility for fair presentation
The auditor should obtain audit evidence that management acknowledges its responsibility for the fair presentation of the accounts in accordance with the applicable reporting framework, including whether
- the selection and application of accounting policies are appropriate;
- all transactions have been recorded;
- the following matters, where relevant, have been recognised, measured or disclosed per the financial reporting framework:
- plans or intentions that may affect the carrying value or classification of assets and liabilities;
- liabilities, both actual and contingent;
- title to or control over assets, and the liens or encumbrances on assets, and assets pledged as collateral;
- aspects of contractual agreements that may affect the financial statements, including non-compliance; and
- events subsequent to period-end.
Responsibility for internal control
The auditor should obtain audit evidence that management acknowledges and understands its responsibility for the design, implementation and maintenance of internal control revelant to the financial statements to prevent or detect and correct material misstatement (the statements are free from material misstatements), and states whether it believes the internal control is adequate for that purpose.
Responsibility for making information available
The auditor should obtain audit evidence that management believes that all records, documents, unusual matters of which management is aware, and other information relevant to the audit has been made available to the auditor.
For example, in the case of the European Union final annual accounts, the acknowledgment of the above-mentioned responsibilities is included in the management representation letter for the Consolidated Annual Accounts of the European Union, signed by the Accounting Officer.
Specific written representations of particular assertions
A specific written representation whether from management, those charged with governance or employees with specialised knowledge may be necessary to corroborate other audit evidence, particularly where judgement, intent or completeness is involved. The auditor should determine whether specific written representations for specific assertions are necessary and obtain written representations regarding matters that are material, either individually or collectively.
For example, for the audit of the consolidated annual accounts of the European Union, the Annual Activity Reports (AAR) and declaration of assurance by the Director-General of DG BUDG and the audit reports of the Internal Audit Service are examined for the evidence which they provide on accounting and internal control issues related to the reliability of the accounts (e.g. changes to the accounting system, audits performed, etc.).
Evaluating the reliability of written representations
The auditor should:
- evaluate whether the written representations appear reasonable and are consistent with other representations; and
- consider whether the individual(s) making the representations can be expected to be well informed on the particular matters (e.g. Accounting Officer).
Inconsistency with other evidence: If the written representation is inconsistent with other audit evidence, the auditor should determine the reasons for the inconsistency and, if unconvinced, reconsider the reliability of any other written representations that may have been obtained and take appropriate action (e.g. revise the risk assessment and audit procedures).
Doubts about management's integrity: Where the auditor has doubts with respect to management's commitment to competence, communication and enforcement of integrity and ethical values, or diligence, the auditor should assess the effect on the reliability of written representations.
Representations not provided: When relevant parties do not provide the general representations regarding management's responsibilities or any specific representations requested, the auditor should determine the reasons; discuss with management; reconsider the assessment of the integrity of those involved; and take appropriate action, including determining the effects on the auditor's report.
Representations unreliable: If (s)he deems the written representations regarding management's responsibilities not to be reliable, the auditor should consider the effect on the auditor's report.
Disclaimer: The auditor shall disclaim an opinion on the financial statements if:
- (s)he concludes that there is sufficient doubt about the integrity of management such that the written representations are not reliable; or
- management does not provide the written representations.
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