9055 Other written representations

Apr-2018

OAG Guidance

Specific other written representations obtained will depend on the circumstances of the engagement, matters relating to the entity’s business or industry, and the nature and basis of presentation of the financial statements. In general, representations would cover such areas as:

• Management’s acknowledgement of its responsibility to maintain an internal control structure sufficient to produce reliable accounting information.

• Matters where knowledge is confined to management.

• Matters involving judgment or opinion for which corroboration cannot be reasonably obtained.

• Plans or intentions of management that may affect the financial statements.

• Non-compliance with contractual or regulatory matters that may affect the financial statements.

• Circumstances where only limited audit evidence can be obtained by procedures other than inquiry.

• Other matters which could be misunderstood or on which we wish to focus management’s attention.

• Management acknowledges to us that they have made available to us of all financial records and related data.

• Management’s acknowledgement of the completeness and availability of all minutes of meetings of shareholders and directors (including committees thereof) provided to us.

In addition to the requirements in CAS 580, Canadian auditing standards require that we obtain the following specific written representations from management:

• Management’s acknowledgement of its responsibility for the design and implementation of internal control systems to prevent and detect fraud (CAS 240).

• Management’s acknowledgement that the effects of uncorrected financial statement misstatements and out of period adjustments are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. Include a summary of such items in the representation or attach it to the written representation letter (CAS 450).

• Management has disclosed to us its knowledge of fraud or suspected fraud affecting the entity involving:

  • Management;

  • Employees who have significant roles in internal control; or

  • Others where the fraud could have a material effect on the financial statements. (CAS 240).

• Management has disclosed to us its knowledge of any allegations of fraud, or suspected fraud, affecting the entity’s financial statements communicated by employees, former employees, analysts, regulators or others (CAS 240).

• Management has disclosed the results of its assessment of the risk that the financial statements may be materially misstated as a result of fraud (CAS 240).

• Management has disclosed to us plans for future action and the feasibility of these plans when events or conditions have been identified which may cast significant doubt on the entity’s ability to continue as a going concern (CAS 570).

• Management’s assertion as to the completeness of information provided regarding the identification of related parties and all the related party relationships and transactions of which they are aware and appropriate accounting for and disclosure of such relationships and transactions in the financial statements in accordance with the requirements of the applicable financial reporting framework (CAS 550).

• Management’s assertion as to the reasonableness of significant assumptions used in making accounting estimates. Depending on the nature, materiality and extent of estimation uncertainty, management representations about accounting estimates recognized or disclosed in the financial statements may include:

  • The appropriateness of the measurement process, including related assumptions and models, used by management in determining accounting estimates in the context of the applicable financial reporting framework, and the consistency in application of the processes,

  • The assumptions appropriately reflect management’s intent and ability to carry out specific courses of action on behalf of the entity, where relevant to the accounting estimates and disclosures,

  • The completeness and appropriateness of disclosures related to accounting estimates under the entity’s financial reporting framework,

  • Whether subsequent events require adjustment to the accounting estimates and disclosures included in the financial statements (CAS 540).

• Management’s assertion as to the appropriateness of the basis used to determine that the recognition or disclosure criteria of the applicable financial reporting framework have not been met for those accounting estimates not recognized or disclosed in the financial statements (CAS 540).

• Management’s assertion as to the appropriateness of the basis used to overcome the presumption relating to the use of fair value set forth under the entity’s applicable financial reporting framework for those accounting estimates not measured or disclosed at fair value (CAS 540).

• Management acknowledges that it has disclosed to us and appropriately accounted for and disclosed in accordance with the applicable financial reporting framework all known actual or possible litigation and claims whose effects should have been considered when preparing financial statements (CAS 501).

• Management assertion that subsequent events requiring adjustment to or disclosure in the financial statements in accordance with the applicable financial reporting framework have been adjusted or disclosed (CAS 560).

• Management acknowledges that it has disclosed all known actual or suspected non-compliance with laws and regulations whose effects should have been considered when preparing financial statements (CAS 250).

• Specific representation regarding any restatement made to correct a material misstatement in prior period financial statements that affect the comparative information (CAS 710).

• When the document(s) included in the entity’s annual report are not available until after the date of the auditor’s report, specific representation that the final version of such document(s) will be provided when available, and prior to its issuance by the entity (CAS 720).

Give consideration to unusual or troublesome circumstances that may require specific representations, as well as areas of significant risk and significant judgments. In general, special representations are most important whenever, in our judgment, we believe we need management’s assurance that we have been provided with all the information necessary for us to form an appropriate opinion on any matter. Focus coaching and briefing meetings on identifying special or specific representations that are to be obtained from the client.

Involve engagement leaders and team managers in the evaluation of the nature and appropriateness, as well as the necessity, of additional representations of specific items. We would not generally incorporate specific item representations in the letter without tailoring to specific client facts and circumstances. If there is nothing unusually complex with respect to a particular financial statement line item or disclosure, the item is determined to be low risk or sufficient audit evidence has otherwise been obtained through the completion of our audit procedures, a specific item representation may not be necessary. For instance, the representations selected from the illustrative specific item representations need to be modified to capture those assumptions, procedures, methods or source and reliability of supporting data that are subjective and material to the significant judgments and estimates made by management in the preparation of the financial statements. Consider the specific client facts and circumstances to determine not only which specific item representations to include, but how to sufficiently tailor those representations to capture the key judgments, assumptions and areas of risk associated with the financial statements.

When creating a representation letter using the management representation template, review the specific items representations available to determine which items are applicable to the engagement and are to be added and tailored to the specific facts and circumstances of the engagement. The fact that a particular specific item representation is applicable to the financial statements does not automatically indicate a written representation is necessary (e.g., if (i) there is nothing unusually complex with respect to a particular financial statement line item or disclosure, (ii) the item is determined to be low risk, or (iii) sufficient audit evidence has otherwise been obtained through the completion of our audit procedures without the need for additional representation, a specific item representation may not be warranted).