You are on page 1of 6

Intro: This Study Guide discusses the purpose of & procedure for obtaining management

representations (MR), quality & reliability of MR as audit evidence, circumstances where MR


are necessary & the matters on which representations are commonly obtained.

Purpose of & procedure for obtaining management representation

Management representation:
?representation by management to auditor during Audit evidence is
the course of an audit, either unsolicited or in not available.
response to specific enquiries Can we use MR
?can be used as audit evidence but is not a as audit
substitute for audit evidence when it is expected evidence?
to be available Yes!!!
We can

Purpose of management representations:


? acknowledgement of responsibility for the FS by management
? used as audit evidence when other audit evidence is excepted to be not
available
? requirement of ISA 580
Misunderstandings
? acknowledges representations previously made verbally by management
between management
? minimises misunderstandings between management & auditor
& auditor should be
? reasonable assurance about effective working of internal control system
minimised

Management Representation F3.1


Quality, reliability of MR & circumstances where MRs are necessary

Quality & reliability of MR:


? Written evidence given by responsible person,
therefore more reliable.
? Internal evidence - management may
manipulate information, therefore less reliable.
? Auditors need to view it with professional
scepticism.
Auditor is viewing MR with
Written evidence is professional scepticism
more reliable
Auditor of Lucky Ltd
Why do you have
very high overhead Evaluation of reliability:
expenditure in the ? seek corroborative audit evidence
month of December? ? evaluate consistency of re presentation with other
evidence, if any
? consider whether those who have signed
It’s our custom to
representation are conversant with particular
pay a bonus in
matter
December

Now auditor can check previous ?Evaluation of


?
Corroborative audit evidence
year’s accounts for confirmation consistency of MR
If management refuses to provide a Discussion between partners
representation then auditor should: of an audit firm
? consider whether to give a modified opinion on the FS
? consider whether he should modify assertion that he Both audit evidence & MR
has obtained all the information & explanations are not available. I am not
required by him sure about the true and
? reconsider the reliability of other representations fair presentation of the FS
obtained by him

Modify your
report

Circumstances where MRs are necessary:


? For design & implementation of internal control system to
prevent or detect error.
? Uncorrected aggregated financial misstatements.
? Sufficient appropriate audit evidence is not available for any
One of Lucky Ltd’s buildings
subject matter which is material.
was destroyed by fire, after
? When it is matter of judgement or opinion of management.
the BS date.
? Subsequent events.
The auditor may ask for MR
? Related party transactions.
about the entity’s GC status
? Contingent liabilities.

Management Representation F3.3

You might also like