Written representations - Purpose of representations

Learning Outcomes

After completing this article, you will be able to explain why auditors obtain written representations, describe their role as audit evidence, identify when such representations are required, and discuss their limitations and consequences for the audit opinion. You will gain clarity on the types of matters typically covered by written representations and know what to do if management refuses to sign them.

ACCA Foundations in Audit (FAU) Syllabus

For ACCA Foundations in Audit (FAU), you are required to understand the role and significance of written representations in the audit completion process. You should focus your revision on:

• The purpose of written representations obtained by the auditor
• Typical contents and topics covered by written representations
• When and why the auditor requests written confirmation from management
• The limitations of written representations as audit evidence
• The implications for the audit report if written representations are refused

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the main reason an auditor requests written representations from management?
2. Are written representations a substitute for other types of audit evidence? Explain your answer.
3. List two areas commonly covered by written representations in an audit.
4. What action should the auditor take if management refuses to sign the written representation letter?

Introduction

Written representations are a key procedure at the audit completion stage. They provide direct statements from management on matters relevant to the financial statements or audit, especially where other evidence cannot be obtained. Understanding their purpose, strengths, and limitations is essential for ensuring your audit opinion is supported by sufficient and appropriate evidence.

Key Term: written representation
A formal statement, usually in the form of a letter, provided by management to the auditor to confirm certain matters or to support other audit evidence.

THE PURPOSE AND ROLE OF WRITTEN REPRESENTATIONS

Why auditors obtain written representations

Written representations serve three main audit purposes:

• To document management’s acknowledgment of responsibility for the financial statements and disclosures
• To confirm oral representations already made to the auditor during the audit
• To provide or support evidence where matters rely solely on management’s knowledge, plans, or judgement

These representations are particularly important for issues where audit evidence from external or independent sources is not available or not sufficient.

Key Term: management responsibility
The duty of management to prepare financial statements in accordance with the applicable reporting framework and provide all relevant information to the auditor.

Key Term: audit evidence
Information obtained and evaluated by the auditor to support the audit opinion.

Types of matters covered

Common items for written representations include:

• Confirmation that all transactions have been recorded and disclosed properly
• Acknowledgement that all relevant information has been provided
• Material contingent liabilities, legal matters, or subsequent events known only to management
• Management’s assessment of going concern, estimates, or plans

Authority and timing

The representation letter is usually signed by those with primary responsibility for the financial statements (e.g., CEO, CFO, directors). It is dated on or before the auditor’s report date, matching the approval date of the financial statements.

WRITTEN REPRESENTATIONS AS AUDIT EVIDENCE

Written representations are only one form of audit evidence. The auditor should rely on them only when other evidence cannot be obtained, or as a supplement to support evidence from other sources.

Key Term: sufficient appropriate audit evidence
Evidence that is both adequate in quantity and quality, enabling the auditor to draw reasonable conclusions for the audit opinion.

Reliance on written representations alone is not normally acceptable where evidence could reasonably be obtained from other sources. The reliability of representations depends on:

• Who provides them (must have suitable authority and knowledge)
• The nature of the matter
• Whether they are consistent with other audit findings

Worked Example 1.1

A client director states verbally that there are no ongoing legal claims against the company. You cannot find any supporting documentation or legal correspondence. What should you do?

Answer:

• Request a written representation, signed by management, confirming that there are no undisclosed legal claims.
• Ideally, corroborate this with external legal confirmations if possible. Do not rely solely on verbal statements.

LIMITATIONS AND CAUTIONS

Written representations do not, by themselves, provide sufficient audit evidence regarding the completeness or accuracy of the financial statements. They cannot be used as a substitute for procedures such as confirmation with third parties, inspection of documents, or physical observation.

Exam Warning

It is a common error to assume that obtaining a representation letter alone is enough to resolve all uncertainties. In reality, the letter is supporting evidence only where independent evidence cannot reasonably be obtained.

If representations conflict with other evidence, the auditor must investigate and may need to request further explanations or documentation.

If management refuses to sign

When management refuses to provide requested written representations, the auditor should:

• Seek to understand the reason for refusal
• Re-evaluate the integrity of management
• Consider the implications for the audit opinion, which may result in a qualified or disclaimer opinion due to lack of sufficient appropriate evidence

Worked Example 1.2

During completion, management declines to sign a representation confirming completeness of liabilities. What should the auditor do?

Answer:

• Discuss with management to clarify the refusal.
• Consider whether other evidence sufficiently covers this area.
• If adequate evidence is not available, modify the audit opinion due to limitation in scope.

Summary

Written representations are a key part of audit completion, reinforcing management’s responsibility and addressing matters where other evidence is unattainable. However, they do not replace other forms of audit evidence and refusal to provide them is a serious issue for the auditor.

Key Point Checklist

This article has covered the following key knowledge points:

• Define written representations and state their primary purpose in the audit
• Outline typical matters covered by written representations
• Explain why representations do not replace other audit evidence
• Identify the risks of relying solely on written representations
• Describe the consequences if management refuses to provide written representations

Key Terms and Concepts

• written representation
• management responsibility
• audit evidence
• sufficient appropriate audit evidence