Representations by Management
dThe auditor should
obtain representations from the owner in writing where considered
appropriate in the course of auditing the entity. The auditor must
obtain evidence that the owner acknowledges that it’s
their responsibility to prepare and present the financial information
and the owner has approved the financial information presented to
the auditor for auditing.
The auditor should exercise his professional competence, expertise and
judgment in determining the matters on which he wishes to obtain
representations from the owner in the course of his auditing.
Representation must be obtained in writing on matters which have
material impact on the financial information when other sufficient and
appropriate audit evidence cannot be reasonably expected to exist.
Representation by the owner cannot be a substitute for other audit
evidence which the auditor could reasonably expect to be available. But
in certain circumstances where the knowledge of facts is only limited
to the owner or where the matter is principally one of intention,
a representation by the owner may be the only audit evidence which
can reasonably be expected to be available.
If representation by the owner are contradicted by any other
evidence gathered in the course of auditing, the auditor must consider
the circumstances and, when necessary. Reconsider the reliability of
the other representations made by the owner. The auditor must
always document in his working papers evidence of the owners
representations. A written representation is always better than an oral
one.
A owners representation letter should be addressed to the auditor
containing the relevant information and should be appropriately dated
and signed by the members of the owner who have the
primary responsibility of preparation of the entity and its financial
aspects like the managing director, finance director, company secretary
etc.
If the owner refuses to provide written representation on any
matter that the auditor considers necessary, it will constitute a
limitations to the scope of his auditing assignment. In such
circumstances the auditor should evaluate any reliance he has places on
other evidence and put his reservation clearly in the audit report on
the financial statements presented to him for auditing.