Annual Audit Manual
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9054 Formal requirements on written representation
Sep-2022
In This Section
Form of written representations
CAS Requirement
The written representations shall be in the form of a representation letter addressed to the auditor. If law or regulation requires management to make written public statements about its responsibilities, and the auditor determines that such statements provide some or all of the representations required by paragraphs 10 and 11, the relevant matters covered by such statements need not be included in the representation letter (CAS 580.15).
CAS Guidance
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 statement is a representation to the users of the financial statements, 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 paragraphs 10 and 11. Consequently, the relevant matters covered by such 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 fulfillment 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 statements. (CAS 580.A19)
A formal statement of compliance with law or regulation, or of approval of the financial statements, 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. (CAS 580.A20)
OAG Guidance
The management representation template is available in the procedure for “Other auditing and completion procedures” within the program “Completion and Reporting Activities”. Engagement teams must carefully review and modify the management representation letter where appropriate to reflect the specific circumstances of the engagement.
Copies of representation letters sometimes are sent to us by fax or other electronic means. Obtain original signed letters for the audit file.
For group audits guidance, see OAG Audit 2343.
CAS Requirement
The date of the written representations shall be as near as practicable to, but not after, the date of the auditor’s report on the financial statements. The written representations shall be for all financial statements and period(s) referred to in the auditor’s report (CAS 580.14).
CAS Guidance
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 statements, the written representations are dated as near as practicable to, but not after, the date of the auditor’s report on the financial statements. (CAS 580.A15)
In some circumstances it may be appropriate for the auditor to obtain a written representation about a specific assertion in the financial statements during the course of the audit. Where this is the case, it may be necessary to request an updated written representation. (CAS 580.A16)
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. (CAS 580.A17)
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 statements 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. (CAS 580.A18)
OAG Guidance
In certain circumstances, a separate representation letter regarding specific transactions or other events may also be obtained at a date after the date of the auditor’s report, e.g., on the date of a public offering.
On occasion, we may receive a management representation letter as of the date of the audit report but there may be a substantial delay in actually issuing the report (e.g., press release date versus issuing financials). Under various other circumstances, we may be requested to reissue an opinion on previously issued financial statements. In either situation, consider obtaining an update letter. It is not necessary to request a client to duplicate the content of the original letter; rather, it is sufficient to request the entity to make its representations current by referring to the previous letter and informing us of any material subsequent developments. Where possible, update letters are to be signed by the persons who signed the original representation letter.
The updating management representation letter would state (a) whether any information has come to management’s attention that would cause them to believe that any of the previous representations should be modified, and (b) whether any events have occurred subsequent to the balance sheet date of the latest financial statements reported on by us that would require adjustment to or disclosure in those financial statements.
The issuance of an earnings release does not constitute issuance of financial statements because the earnings release typically would not be in a form and format that complies with the applicable financial reporting framework. Management would not be in a position to sign the management representation letter at the time of the earnings release as they have not yet completed preparation of their financial statements.
In some situations, members of management during the period under audit may have been replaced by new management subsequent to that period. In those circumstances, obtain a representation letter covering all periods presented from the current management, who are responsible for issuing the financial statements. If we are unable to obtain such a letter, a scope limitation exists. Current management will need to do what they consider necessary to make the representations, and we need to be satisfied that they have a reasonable basis for those representations.
Practical difficulties may arise in sale, carve out or spin off situations. When our engagement is to audit financial statements prepared from historical accounting records maintained under prior ownership when the entity is under new ownership at the time of our engagement, management may resist our request for representation letter signatures. For example, resistance to our requests for representation letter signatures may arise when current management believes that it bears no responsibility for accounting records developed by prior management or where purchase price adjustments result from information in the audited financial statements and arbitration is expected.
The inability to obtain written representations from current management, including employees who have provided us with significant representations, will represent a scope limitation. Discuss the requirement for signed representation letters early in the process of engagements involving new management teams (such as with sale, carve out, or spin off audit engagements), and verify that appropriate officials are aware of their responsibility for the audited financial statements. If difficulties are encountered in obtaining required representations, consultation with Audit Services may be appropriate.
Using electronic signatures
Where electronic signatures are acceptable pursuant to relevant laws, regulations, we may use electronic signature technology as a means for obtaining signatures on management representation letters.
However, we need to be aware that if an electronic signature technology is used, the electronic signature is typically accompanied by a system generated date and time stamp (e.g., the actual signature date and time is system generated and is recorded in the electronic signature tool). Therefore, in these circumstances, there may be two dates in the representation letter: the date of the letter itself written into the text of the letter (referred to in this guidance as the "representation letter date"), and the date the technology records when the electronic signature is made (referred to in this guidance as the "signature date" or "electronic signature date").
Consistent with our practice for obtaining manually signed representation letters, we need to avoid situations where the electronic signature date is later than the date of the audit report. This is because the signature date is documented evidence of when management affirmed their responsibility for the financial statements and a required part of the audit evidence we need to obtain before completing the audit. Therefore, we need to obtain management's electronic signature prior to providing our signed and dated audit report to the entity. Although electronic signature technologies have not changed this requirement, they do increase the importance of checking the electronic signature date recorded by the technology to determine it is not later than the date of our audit report.
OAG Guidance
When planning your audit, understand the structure of the entity’s management to determine from whom the management representations will be obtained and plan accordingly that the representations will be obtained as near as practicable to the date of the auditor’s report on the financial statements. Gauge accordingly to the level from whom the representations will be obtained. Written representations are considered audit evidence.
Written representations should be obtained from those responsible for the preparation of the financial statements which are typically the chief executive officer and the chief financial officer, or other equivalent persons in entities that do not use such titles. In some cases, those charged with governance are also responsible for the preparation of financial statements. See CAS 580.A2-A6 for additional guidance on this topic and on management representations as it relates to “informed representations.”