Written Representations ISA Implementation Support Module Prepared by

Written Representations ISA Implementation Support Module Prepared by IAASB Staff October 2010

Overview • Introduction • Significant Features of New Standard – Basis for Requiring Written Representations – Written Representations as Audit Evidence – Source of Written Representations – Management’s Responsibilities – Specific Written Representations – Dating of Written Representations 2

Introduction • The context for revising ISA 580 – Firms’ practices around the world regarding written representations had become inconsistent – Evidence of excessive or undue reliance on written representations from quality control inspections – Question of where primary responsibility for the financial statements lies as a result of a spate of major corporate scandals 3

Basis for Requiring Written Representations Old ISA 580 New ISA 580 When other audit evidence cannot reasonably be expected to exist To support other audit evidence 4

Written Representations as Audit Evidence • Written representations are audit evidence – They are necessary information used to arrive at audit conclusions • However, on their own they cannot be relied upon for audit evidence to support audit conclusions • A written representation defined as a written statement that management provides to the auditor to confirm certain matters or to support other audit evidence – Not to be confused with an external confirmation 5

Source of Written Representations Old ISA 580 New ISA 580 Ordinarily management with primary responsibility for the entity and its financial aspects Only from management who has responsibility for: (1) Preparing and presenting financial statements; and (2) Is knowledgeable about the relevant matters 6

Management’s Responsibilities Old ISA 580 Audit evidence that management acknowledges its responsibility for fair presentation of f/s New ISA 580 ISA 210 Written representations that management has: (1) Fulfilled its responsibility for preparation and, where relevant, fair presentation of f/s; and (2) Provided auditor with all relevant information and access 7

Management’s Responsibilities • Two further requirements – Written representations that all transactions have been recorded and are reflected in the financial statements − to support audit evidence regarding completeness – Description of management’s responsibilities in written representations to be consistent with description of those responsibilities in agreed terms of engagement • No requirement for written representation regarding fulfillment of management’s responsibility regarding internal control 8

Management’s Responsibilities • Audit evidence about completeness cannot be obtained when: – Management fails or refuses to provide the written representations regarding fulfillment of its responsibilities – There is sufficient doubt about management’s integrity such that the written representations are not reliable • Judgment about whether management has fulfilled its responsibilities cannot be formed on basis of other audit evidence in these circumstances • Disclaimer of opinion required in such a case 9

Specific Written Representations ISA 580: Overarching basic principles on written representations Specific written representations required by other ISAs Specific written representations auditor believes are necessary To support other audit evidence regarding specific aspects of f/s To support other audit evidence regarding specific assertions 10

Dating of Written Representations • Date written representations as near as practicable to, but not after, date of audit report – Written representations are necessary audit evidence without which audit opinion cannot be expressed • Written representations should cover all financial statements and period(s) referred to in audit report – Important for management to reaffirm that written representations for prior periods are still appropriate – Requirement applies even if current management were not present during all periods referred in audit report 11

Note This set of support slides does not amend or override the ISAs, the texts of which alone are authoritative. Reading the slides is not a substitute for reading the ISAs. The slides are not meant to be exhaustive and reference to the ISAs themselves should always be made. In conducting an audit in accordance with ISAs, the auditor is required to comply with all the ISAs that are relevant to the engagement. 12

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