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Revised Standard on Auditing (SA) 580 Standard on Auditing (SA) 580 (Revised), "Written Representations" should be read in the context of the "Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services1", which sets out the authority of SAs. Introduction Scope of this SA 1. This Standard on Auditing (SA) deals with the auditor's responsibility to obtain written representations from management and, where appropriate, those charged with governance. Written Representations as Audit Evidence 2. Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based.2 Written representations are necessary information that the auditor requires in connection with the audit of the entity's financial statements. Accordingly, similar to responses to inquiries, written representations are audit evidence. (Ref: Para. A1) 3. Although written representations provide necessary audit evidence, they do not provide sufficient appropriate audit evidence on their own about any of the matters with which they deal. Furthermore, the fact that management has provided reliable written representations does not affect the nature or extent of other audit evidence that the auditor obtains about the fulfillment of management's responsibilities, or about specific assertions. Effective Date 4. This SA is effective for audits of financial statements for periods beginning on or after 1st April, 2009. Objectives 5. The objectives of the auditor are:
Definition 6. For purposes of the SAs, the following term has the meaning attributed below: Written Representations - A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence. Written representations in this context do not include financial statements, the assertions therein, or supporting books and records. 7. For purposes of this SA, references to "management" should be read as "management and, where appropriate, those charged with governance". Furthermore, in the case of a fair presentation framework, management is responsible for the preparation and fair presentation of the financial statements in accordance with the financial reporting framework; or the preparation of financial statements that give a true and fair view in accordance with the financial reporting framework. Requirements Management from Whom Written Representations Requested 8. The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned. (Ref: Para. A4-A8) Written Representations about Management's Responsibilities Preparation and Presentation of the Financial Statements 9. The auditor shall request management to provide a written representation that it has fulfilled its responsibility for the preparation and presentation of the financial statements as set out in the terms of the audit engagement3 and, in particular, whether the financial statements are prepared and presented in accordance with the applicable financial reporting framework (Ref: Para. A9-A11, A16, A24) Information Provided to the Auditor 10. The auditor shall request management to provide a written representation that it has provided the auditor with all relevant information agreed in the terms of the audit engagement4 and that all transactions have been recorded and are reflected in the financial statements. (Ref: Para A9-A11, A16, A24) Description of Management's Responsibilities in the Written Representations 11. Management's responsibilities shall be described in the written representations required by paragraphs 9 and 10 in the manner in which these responsibilities are described in the terms of he audit engagement. (Ref: Para. A3) Other Written Representations 12. Other SAs require the auditor to request written representations. If, in addition to such required representations, the auditor determines that it is necessary to obtain one or more written representations to support other audit evidence relevant to the financial statements or one or more specific assertions in the financial statements, the auditor shall request such other written representations. (Ref: Para. A12-A15, A16, A24) Date of and Period(s) Covered by Written Representations 13. 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. (Ref: Para A17-A20) Form of Written Representations 14. 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 hat such statements provide some or all of the representations required by paragraphs 9 or 10, the relevant matters covered by such statements need not be included in the representation letter. (Ref: Para. A21-A23) Doubt as to the Reliability of Written Representations and Requested Written Representations Not Provided Doubt as to the Reliability of Written Representations 15. If the auditor has concerns about the competence, integrity, ethical values or diligence of management, or about its commitment to or enforcement of these, the auditor shall determine the effect that such concerns may have on the reliability of representations (oral or written) and audit evidence in general. (Ref Para. A26-A27) 16. In particular, if written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the matter. If the matter remains unresolved, the auditor shall reconsider the assessment of the competence, integrity, ethical values or diligence of management, or of its commitment to or enforcement of these, and shall determine the effect that this may have on the reliability of representations (oral or written) and audit evidence in general. (Ref Para. A25) 17. If the auditor concludes that the a written representations are not reliable, the auditor shall take appropriate actions, including determining the possible effect on the opinion in the auditor's report in accordance with (Proposed) SA 7055 , having regard to the requirement in paragraph 19 of this SA. Requested Written Representations Not Provided 18. If management does not provide one or more of the requested written representations, the auditor shall:
Written Representations about Management's Responsibilities 19. The auditor shall disclaim an opinion on the financial statements in accordance with [Proposed] SA 705 if: (Ref: Para. A28-A29)
Application and Other Explanatory Material Written Representations as Audit Evidence (Ref: Para. 2) Premise, relating to Management's Responsibilities, on which an Audit is
Conducted (Ref: Para. 5(a), 11)
A3. SA 210 (Revised) requires the auditor to obtain the agreement of management that it acknowledges and understands those responsibilities as a precondition for accepting the audit engagement7 by him. If management's responsibilities prescribed by law or regulation are equivalent in effect to those described in paragraph A2, the auditor may use the wording of the law or regulation to describe them in the terms of the audit engagement.8 Management from Whom Wi1tten Representations Requested (Ref. Para. 8) A5. Due to its responsibility for the preparation and presentation of the financial statements, 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 statements and the assertions therein on which to base the written representations. A6. In some cases, however, management may decide to make inquiries of others who participate in preparing and presenting the financial statements and assertions therein, including individuals who have specialised knowledge relating to the matters about which written representations are requested. Such individuals may include:
A7. 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. A8. 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 inquiries 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 inquiries would usually require a formal internal process beyond those already established by the entity. Written Representations about Management's Responsibilities (Ref: Para. 9-10) A9. Audit evidence obtained during the audit that management is fulfilling the responsibilities that it agreed to in the terms of the audit engagement 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 statements 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 the information described in paragraph A2(b) without asking it whether, and receiving confirmation that, such information has been provided. A10. The written representations required by paragraphs 9 and 10 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 particularly appropriate when:
Consistent with the requirement of [proposed] SA 210 (Revised),9 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 A7 of this SA). A11. The mandates for audits of the financial statements of certain 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 statements of such an 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 legislation or proper authority. Other Written Representations (Ref: Para. 12) Additional Written Representations about the Financial Statements A12. In addition to the written representation required by paragraph 9, the auditor may consider it necessary to request other written representations about the financial statements. Such written representations may supplement, but do not form part of, the written representation required by paragraph 9. They may include representations about the following:
Additional Written Representations about Information Provided to the Auditor A13. In addition to the written representation required by paragraph 10, the auditor may consider it necessary to request management to provide a Written Representations about Specific Assertions A14 When obtaining evidence about, or evaluating, judgments and intentions, the auditor may consider one or more of the following:
A15. In addition, the auditor may consider it necessary to request management to provide written representations about specific assertions in the financial statements; in particular, to support an understanding that the auditor has obtained from other audit evidence of management's judgment 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 suffi6ent 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. Communicating a Threshold Amount (Ref: Para. 9-10,12) A16. Proposed) SA 450 (Revised)10 requires the auditor to accumulate misstatements identified during the audit, other than those that are clearly trivial. 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. Date of and Period(s) Covered by Written Representations (Ref: Para. 13) A17. 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 of 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. A18. 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. A19. 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. A20. 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. Form of Written Representations (Ref. Para. 14) A21. Written representations are required to be included in a representation letter addressed to the auditor. Some laws or regulations m y, however, require management 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 paragraph 9 or 10. 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:
A22. 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. A23. The Appendix to this Standard provides an illustrative example of a representation letter. Communication with Those Charged with Governance (Ref: Para. 9-10,12) A24. SA 260 (Revised)11 requires the auditor to communicate with those charged with governance the written representations which the auditor has requested from management. Doubt as to the Reliability of Written Representations and Requested Written Representations Not Provided Doubt as to the Reliability of Written Representations (Ref. Para. 15-16) A25. 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. A26. 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 this representation in the financial statements is such that an audit cannot be conducted. In such a case, the auditor may consider, where possible, withdrawing from the engagement, 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. A27. SA 230 (Revised)12 requires the auditor to document significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions. 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 SA 230 (Revised). Written Representations about Management's Responsibilities (Ref: Para. 19) A28. As explained in paragraph A9, the auditor is not able to judge solely on other audit evidence whether management has prepared and presented the financial statements and provided information to the auditor on the basis of the agreed acknowledgement and understanding of its responsibilities. Therefore, if, as described in paragraph 19(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 statements of such inability are not confined to specific elements, accounts or items of the financial statements and are hence pervasive. [Proposed] SA 705 requires the auditor to disclaim an opinion on the financial statements in such circumstances. A29. 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:
Material Modifications to ISA 580, "Written Representations" Deletions 1. Paragraph A11 of the Application Section of ISA 580 deals with the application of the requirements of ISA 580 to the audits of public sector entities regarding the premise, relating to management's responsibilities which may give rise to additional written representations. Since as mentioned in the "Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services", the Standards issued by the Auditing and Assurance Standards Board, apply equally to all entities, irrespective of their form, nature and size, a specific reference to applicability of the Standard to public sector entities has been deleted. Since it is also possible that even in case of non public sector entities, management responsibilities may give rise to additional representations, accordingly, the spirit of erstwhile All, highlighting the fact that in case of certain entities, the need of additional representations may arise, has been retained. Appendix (Ref. Para. A23) Illustrative Representation Letter The following illustrative letter includes written representations that are required by this and other SAs in effect as at [date]. It is assumed in this illustration that the applicable financial reporting framework is applicable accounting standards in India; the requirement of SA 570 (Revised)13 to obtain a written representation is not relevant; and that there are no exceptions to the requested written representations. If there were exceptions, the representations would need to be modified to reflect the exceptions.
This representation letter is provided in connection with your audit of
the financial statements of ABC Company for the year ended December 31,
20XX14 for the purpose of expressing an opinion as to whether the financial
statements are presented fairly, in all material respects, (or give a true
and fair view) in accordance with the applicable accounting standards in
India. Financial Statements
Information Provided
Management Management * Earlier known as the Auditing and Assurance Standard (AAS) 11, "Representations by Management". 1 published in the July, 2007 issue of the journal. 2 SA 500,'Audit Evidence", (earlier known as AAS 5), refer paragraphs 2 and 3. The Standard is being revised in the light, of the corresponding International Standard. 3 SA 210, "Terms of Audit Engagement", (earlier known as AAS 26), refer paragraph 6. The Standard is being revised in the light of the corresponding International Standard. 5 SA 705, "Modifications to the Opinion in the Independent Auditor's Report". The Auditing and Assurance Standards Board will issue an Exposure Draft of the proposed new Standard based on the corresponding International Standard on Auditing in the near future. Presently, the concept of modified opinion in the auditor's report is dealt in SA 700, "The Auditor's Report on Financial Statements", hitherto AAS 28. 6 SA 200, "Basic Principles Governing an Audit ' (earlier known as AAS 1), refer paragraphs18 and 19. The Standard is being revised in the light of the corresponding International Standard. 10 "SA 450, "Evaluation of Misstatements Identified During the Audit". The Auditing and Assurance Standards Board will issue an Exposure Draft of the proposed new Standard based on the corresponding International Standard on Auditing in the near future. presently, the concept of audit materiality is dealt with in AAS 13 "Audit Materiality". 11 The Exposure Draft of Revised SA 260, "Communication with Those Charged with Governance", (hitherto known as AAS 27) has been published in May, 2008 issue of the Journal. Refer paragraph 12(c)(iii) of the said Exposure Draft. 12 SA 230 (Revised), 'Audit Documentation" (hitherto known as AAS 3), refer paragraph 8. The Standard is being revised in the light of the corresponding International Standard. 13 The Exposure Draft of Revised SA 570, "Going Concern" (hitherto known as AAS 16) has been published in the October 2007 issue of the journal. 14 Where the auditor reports on more than one period, the auditor adjusts the date so that the letter pertains to all periods covered by the auditor's report. 15 SA 550, "Related Parties" (hitherto known as AAS 23). The Standard is being revised in die light of the corresponding International Standard. 16 The Exposure Draft of Revised SA 250, "The Auditor's Responsibilities Relating to Laws and Regulations in an Audit of Financial Statements" has been published in the February, 2008 issue of the journal. 17 SA 550, "Related Parties" (hitherto known as AAS 23). The Standard is being revised in the light of the corresponding International Standard.
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