(Ref: Para. 3)

Written representations are an important source of audit evidence.  If management modifies or does not provide the requested written representations, it may alert the auditor to the possibility that one or more significant issues may exist.  Further, a request for written, rather than oral, representations in many cases may prompt management to consider such matters more rigorously, thereby enhancing the quality of the representations.

(Ref: Para. 9)

Written representations are requested from those responsible for the preparation of the financial report.  Those individuals may vary depending on the governance structure of the entity, and relevant law or regulation; however, management (rather than those charged with governance) is often the responsible party.  Written representations may therefore be requested from the entity’s chief executive officer and chief financial officer, or other equivalent persons in entities that do not use such titles.  In some circumstances, however, other parties, such as those charged with governance, are also responsible for the preparation of the financial report.

Due to its responsibility for the preparation of the financial report, and its responsibilities for the conduct of the entity’s business, management would be expected to have sufficient knowledge of the process followed by the entity in preparing and presenting the financial report and the assertions therein on which to base the written representations.

In some cases, however, management may decide to make enquiries of others who participate in preparing and presenting the financial report and assertions therein, including individuals who have specialised knowledge relating to the matters about which written representations are requested.  Such individuals may include: 

• An actuary responsible for actuarially determined accounting measurements. 
• Staff engineers who may have responsibility for and specialised knowledge about environmental liability measurements. 
• Internal counsel who may provide information essential to provisions for legal claims. 

In some cases, management may include in the written representations qualifying language to the effect that representations are made to the best of its knowledge and belief.  It is reasonable for the auditor to accept such wording if the auditor is satisfied that the representations are being made by those with appropriate responsibilities and knowledge of the matters included in the representations.

To reinforce the need for management to make informed representations, the auditor may request that management include in the written representations confirmation that it has made such enquiries as it considered appropriate to place it in the position to be able to make the requested written representations.  It is not expected that such enquiries would usually require a formal internal process beyond those already established by the entity.

(Ref: Para. 10-11)

Audit evidence obtained during the audit that management has fulfilled the responsibilities referred to in paragraphs 10 and 11 is not sufficient without obtaining confirmation from management that it believes that it has fulfilled those responsibilities.  This is because the auditor is not able to judge solely on other audit evidence whether management has prepared and presented the financial report and provided information to the auditor on the basis of the agreed acknowledgement and understanding of its responsibilities.  For example, the auditor could not conclude that management has provided the auditor with all relevant information agreed in the terms of the audit engagement without asking it whether, and receiving confirmation that, such information has been provided.

The written representations required by paragraphs 10 and 11 draw on the agreed acknowledgement and understanding of management of its responsibilities in the terms of the audit engagement by requesting confirmation that it has fulfilled them.  The auditor may also ask management to reconfirm its acknowledgement and understanding of those responsibilities in written representations.  This is common in certain jurisdictions, but in any event may be particularly appropriate when: 

• Those who signed the terms of the audit engagement on behalf of the entity no longer have the relevant responsibilities; 
• The terms of the audit engagement were prepared in a previous year; 
• There is any indication that management misunderstands those responsibilities; or 
• Changes in circumstances make it appropriate to do so. Consistent with the requirement of ASA 210,^[5] such reconfirmation of management’s acknowledgement and understanding of its responsibilities is not made subject to the best of management’s knowledge and belief (as discussed in paragraph A5). 

Considerations Specific to Public Sector Entities

The mandates for audits of financial reports of public sector entities may be broader than those of other entities.  As a result, the premise, relating to management’s responsibilities, on which an audit of the financial report of a public sector entity is conducted may give rise to additional written representations.  These may include written representations confirming that transactions and events have been carried out in accordance with law, regulation or other authority.

(Ref: Para. 13)

Additional Written Representations about the Financial Report

In addition to the written representation required by paragraph 10, the auditor may consider it necessary to request other written representations about the financial report.  Such written representations may supplement, but do not form part of, the written representation required by paragraph 10.  They may include representations about the following: 

• Whether the selection and application of accounting policies are appropriate; and 
• Whether matters such as the following, where relevant under the applicable financial reporting framework, have been recognised, measured, presented or disclosed in accordance with that 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, the liens or encumbrances on assets, and assets pledged as collateral; and 
  • Aspects of laws, regulations and contractual agreements that may affect the financial report, including non‑compliance.

Additional Written Representations about Information Provided to the Auditor

In addition to the written representation required by paragraph 11, the auditor may consider it necessary to request management to provide a written representation that it has communicated to the auditor all deficiencies in internal control of which management is aware.

Written Representations about Specific Assertions

When obtaining evidence about, or evaluating, judgements and intentions, the auditor may consider one or more of the following: 

• The entity’s past history in carrying out its stated intentions.  
• The entity’s reasons for choosing a particular course of action. 
• The entity’s ability to pursue a specific course of action. 
• The existence or lack of any other information that might have been obtained during the course of the audit that may be inconsistent with management’s judgement or intent.

In addition, the auditor may consider it necessary to request management to provide written representations about specific assertions in the financial report; in particular, to support an understanding that the auditor has obtained from other audit evidence of management’s judgement or intent in relation to, or the completeness of, a specific assertion.  For example, if the intent of management is important to the valuation basis for investments, it may not be possible to obtain sufficient appropriate audit evidence without a written representation from management about its intentions.  Although such written representations provide necessary audit evidence, they do not provide sufficient appropriate audit evidence on their own for that assertion.

(Ref: Para. 10-11, 13)

ASA 450 requires the auditor to accumulate misstatements identified during the audit, other than those that are clearly trivial.^[6]  The auditor may determine a threshold above which misstatements cannot be regarded as clearly trivial.  In the same way, the auditor may consider communicating to management a threshold for purposes of the requested written representations.

(Ref: Para. 14)

Because written representations are necessary audit evidence, the auditor’s opinion cannot be expressed, and the auditor’s report cannot be dated, before the date of the written representations.  Furthermore, because the auditor is concerned with events occurring up to the date of the auditor’s report that may require adjustment to or disclosure in the financial report, the written representations are dated as near as practicable to, but not after, the date of the auditor’s report on the financial report.

In some circumstances, it may be appropriate for the auditor to obtain a written representation about a specific assertion in the financial report during the course of the audit.  Where this is the case, it may be necessary to request an updated written representation.

The written representations are for all periods referred to in the auditor’s report because management needs to reaffirm that the written representations it previously made with respect to the prior periods remain appropriate.  The auditor and management may agree to a form of written representation that updates written representations relating to the prior periods by addressing whether there are any changes to such written representations and, if so, what they are.

Situations may arise where current management were not present during all periods referred to in the auditor’s report.  Such persons may assert that they are not in a position to provide some or all of the written representations because they were not in place during the period.  This fact, however, does not diminish such persons’ responsibilities for the financial report as a whole.  Accordingly, the requirement for the auditor to request from them written representations that cover the whole of the relevant period(s) still applies.

(Ref: Para. 15)

Written representations are required to be included in a representation letter addressed to the auditor.  In some jurisdictions, however, management may be required by law or regulation to make a written public statement about its responsibilities.  Although such a statement is a representation to the users of the financial report, or to relevant authorities, the auditor may determine that it is an appropriate form of written representation in respect of some or all of the representations required by paragraph 10 or 11.  Consequently, the relevant matters covered by such a statement need not be included in the representation letter.  Factors that may affect the auditor’s determination include: 

• Whether the statement includes confirmation of the fulfilment of the responsibilities referred to in paragraphs 10 and 11. 
• Whether the statement has been given or approved by those from whom the auditor requests the relevant written representations. 
• Whether a copy of the statement is provided to the auditor as near as practicable to, but not after, the date of the auditor’s report on the financial report (see paragraph 14).

A formal statement of compliance with law or regulation, or of approval of the financial report, would not contain sufficient information for the auditor to be satisfied that all necessary representations have been consciously made.  The expression of management’s responsibilities in law or regulation is also not a substitute for the requested written representations.

Appendix 2 provides an illustrative example of a representation letter.

(Ref: Para. 10-11, 13)

ASA 260 requires the auditor to communicate with those charged with governance the written representations which the auditor has requested from management.^[7]

Doubt as to the Reliability of Written Representations (Ref: Para. 16‑17)

In the case of identified inconsistencies between one or more written representations and audit evidence obtained from another source, the auditor may consider whether the risk assessment remains appropriate and, if not, revise the risk assessment and determine the nature, timing and extent of further audit procedures to respond to the assessed risks.

Concerns about the competence, integrity, ethical values or diligence of management, or about its commitment to or enforcement of these, may cause the auditor to conclude that the risk of management misrepresentation in the financial report is such that an audit cannot be conducted.  In such a case, the auditor may consider withdrawing from the engagement, where withdrawal is possible under applicable law or regulation, unless those charged with governance put in place appropriate corrective measures.  Such measures, however, may not be sufficient to enable the auditor to issue an unmodified audit opinion.

ASA 230 requires the auditor to document significant matters arising during the audit, the conclusions reached thereon, and significant professional judgements made in reaching those conclusions.^[8]  The auditor may have identified significant issues relating to the competence, integrity, ethical values or diligence of management, or about its commitment to or enforcement of these, but concluded that the written representations are nevertheless reliable.  In such a case, this significant matter is documented in accordance with ASA 230.

Written Representations about Management’s Responsibilities (Ref: Para. 20)

As explained in paragraph A7, the auditor is not able to judge solely on other audit evidence whether management has fulfilled the responsibilities referred to in paragraphs 10 and 11.  Therefore, if, as described in paragraph 20(a), the auditor concludes that the written representations about these matters are unreliable, or if management does not provide those written representations, the auditor is unable to obtain sufficient appropriate audit evidence.  The possible effects on the financial report of such inability are not confined to specific elements, accounts or items of the financial report and are hence pervasive.  ASA 705 requires the auditor to disclaim an opinion on the financial report in such circumstances.^[9]

If Management do not Provide Written Representations

If management do not provide written representations, the auditor would ordinarily: 

1. draw to the attention of those charged with governance any relevant regulatory requirements which give the auditor a right of access to any requested information, explanations or assistance for the purposes of the audit;^[*] 
2. consider any other implications of the refusal that may have any effect on the auditor’s report;^[#] and
3. consider whether the auditor has any regulatory obligation to report that management has not provided a written representation.^[†]

A written representation that has been modified from that requested by the auditor does not necessarily mean that management did not provide the written representation.  However, the underlying reason for such modification may affect the opinion in the auditor’s report.  For example: 

• The written representation about management’s fulfilment of its responsibility for the preparation of the financial report may state that management believes that, except for material non‑compliance with a particular requirement of the applicable financial reporting framework, the financial report is prepared in accordance with that framework.  The requirement in paragraph 20 does not apply because the auditor concluded that management has provided reliable written representations.  However, the auditor is required to consider the effect of the non‑compliance on the opinion in the auditor’s report in accordance with ASA 705. 
• The written representation about the responsibility of management to provide the auditor with all relevant information agreed in the terms of the audit engagement may state that management believes that, except for information destroyed in a fire, it has provided the auditor with such information.  The requirement in paragraph 20 does not apply because the auditor concluded that management has provided reliable written representations.  However, the auditor is required to consider the effects of the pervasiveness of the information destroyed in the fire on the financial report and the effect thereof on the opinion in the auditor’s report in accordance with ASA 705.

This appendix identifies paragraphs in other Auditing Standards that require subject-matter specific written representations. The list is not a substitute for considering the requirements and related application and other explanatory material in the Australian Auditing Standards.

ASA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of the Financial Report – paragraph 40

ASA 250 Consideration of Laws and Regulations in an Audit of a Financial Report – paragraph 17

ASA 450 Evaluation of Misstatements Identified during the Audit – paragraph 14

ASA 502 Audit Evidence—Specific Considerations for Litigation and Claims – paragraph 7

ASA 540 Auditing Accounting Estimates and Related Disclosures – paragraph 37

ASA 550 Related Parties – paragraph 26

ASA 560 Subsequent Events – paragraph 9

ASA 570 Going Concern – paragraph 16(e)

ASA 710 Comparative Information—Corresponding Figures and Comparative Financial Reports – paragraph 9

ASA 720 The Auditor’s Responsibilities Relating to Other Information – paragraph 13(c)