What is the purpose of a letter of representation?

Auditing and Assurance Revision Questions and Answers

A letter of representations is a source of audit evidence normally sought from the directors at the concluding stages of an audit to confirm various matters stated in the accounts particularly those which concern questions of facts or judgment which are difficult for the auditor to prove objectively e.g. there is no need to obtain a letter of representation on the bank balance as this can be proved objectively but there is need to obtain a representation that all contingent liabilities have been properly stated because this is difficult to prove.

 Auditors seek a letter of representation in order to obtain written audit evidence on matters that are material to the financial statements when other sufficient appropriate audit evidence cannot reasonably be expected to exist (ISA 580
‗Management Representations‘).

 Representations may be the only evidence, which can reasonably be expected to be available, but they cannot be a substitute for other audit evidence that could reasonably be expected to be available.

 The letter also ensures that directors acknowledge their collective responsibility for the presentation and approval of the financial statements. The letter is signed those with knowledge of the matters concerned, on behalf of management.

 The letter also seeks to confirm oral representations made management during the course of the audit and also provide corroborative audit evidence.

Auditors therefore obtain written representations from management on material matters where other sufficient appropriate audit evidence cannot reasonably be expected to exist.



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