Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

State the specific representations you, as an auditor, would wish to obtains from the management in respect of :
(i) Assets. (4 marks)
(ii) Liabilities. (4 marks)
(i) Assets.

For assets the auditor would be interested in obtaining confirmations from management that the asset in question exists and belongs to the company. For example if it is goods in transit the auditor may wish management to confirm that such stock belongs to the company. In addition the auditor may also request management to confirm that the asset is properly valued and all the necessary information has been disclosed. For example in relation to debtors the auditor may require management to confirm that they have created an adequate provision for any doubtful accounts or in-case of stock that the an appropriate provision for damaged stock has been created.

However, it is important to note that the specific representations required will depend on the specific asset. The auditor will ordinarily seek to obtain confirmation from management on issues that require judgment and that are difficult to prove objectively. For example on issues touching on the levels of provisions created such as provisions for doubtful debts or the accounting treatment accorded to contingent liabilities where management will need to make assumptions in estimating the possible losses.

(ii) Liabilities.

The main concern for liabilities is to obtain confirmation on completeness i.e. that all liabilities have been recorded and all the relevant information has been disclosed. This will mainly relate to liabilities that require the exercise of judgment such as contingencies. In case of contingencies such as litigations against the company, the auditor will require management to provide representations on the factors they have considered and assumptions they have made in deciding the accounting treatment adopted. The auditor will also require confirmation that management has disclosed all the contingent liabilities that existed as at the balance sheet date.

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