Get premium membership and access questions with answers, video lessons as well as revision papers.
>Auditors seek a letter of representation in order to obtain written audit evidence on
matters that are material to the financial statements when other sufficient
appropriate audit evidence cannot reasonably be expected to exist (ISA 580
‘Management Representations’).
>Representations may be the only evidence, which can reasonably be expected to be
available, but they cannot be a substitute for other audit evidence that could reasonably be expected to be available. Such matters may include management’s intention to hold an item for long-term appreciation.
>The letter also ensures that directors acknowledge their collective responsibility for
the presentation and approval of the financial statements. The letter is signed by
those with knowledge of the matters concerned, on behalf of management.
(b) Common categories of matters included in the letter of representation
>confirmation of responsibility for, and approval of, the financial statements.
>Confirmation that all of the accounting records, and all related documentation(such as minutes of management and shareholder meetings) have been made available, and that company transactions have been properly reflected therein.
>Confirmation of the expected outcome of legal claims.
>Confirmation of company plans in relation to certain tax provisions.
>Confirmation of the completeness of disclosure of related party transactions.
>Confirmation that there have been no post-balance sheet events that requirerevisions to the financial statements.
(c) Discussion of the content of the letter
>It is important to discuss the contents of the letter at an early stage because
directors may disagree with what the auditors wish them to sign.
>It is important in such cases for negotiations to take place and the letter to be redrafted until it is acceptable to both auditor and client.
>The management representation letter is often regarded as a critical piece of audit evidence and if it is left to a late stage in the audit, when there is pressure on auditors and clients alike, negotiations may be difficult.
(d) Management unwilling to sign and actions if management refuses to sign
>Management is sometimes unwilling to sign because they feel that auditors should be able to obtain independent evidence in relation to the relevant matters. Alternatively, they may feel that the auditors are trying to shift responsibility for the audit to them;
>Sometimes, management is genuinely uncertain about whether it is sure of the matters included. However, there are occasions on which management is trying to ‘hide’ from the auditors the fact that the income recorded is incomplete, or
the fact that there is an outstanding undisclosed legal claim against the company, for example;
>Auditors should attempt to negotiate an agreement, as noted above. A formal
letter may not be necessary, if management is able to provide some other written confirmation, such as a note of a meeting. Alternatively, a list of issuesmay be taken to the client to establish exactly which representations are causing
the problem, and the letter redrafted;
>If management still refuses to sign, and the auditor feels that the matter is critical to the financial statements, it may be necessary to qualify the audit report with an ‘except for’ (or even disclaimer of) opinion, on the basis of a limitation in the scope of the audit.
johnson mwenjera answered the question on August 4, 2018 at 11:43
- a) Internal control systems are designed, amongst other things, to prevent error and
misappropriation.
Required:
Describe the errors and misappropriations that may occur if the following are not
properly...(Solved)
a) Internal control systems are designed, amongst other things, to prevent error and
misappropriation.
Required:
Describe the errors and misappropriations that may occur if the following are not
properly controlled:
(i) Receipts paid into bank accounts;
(ii) Payments made out of bank accounts;
(iii) Interest and charges debited and credited to bank account
(b) A book-selling company has a head office and 25 shops, each of which holds cash
(banknotes, coins, and credit card vouchers) at the balance sheet date. There are
no receivables. Accounting records are held at shops. Shops make returns to head
office and head office holds its own accounting records. Your firm has been the
external auditor to the company for many years and has offices near to the
location of some but not all of the shops.
Required:
List the audit objectives for the audit of cash and state how you would gain the audit
evidence in relation to those objectives at the year-end.
c) The external auditors of companies often write to companies’ bankers asking for
details of bank balances and other matters at the year-end.
Required:
Explain why auditors write to companies’ bankers and list the matters you would
expect banks to confirm.
Date posted: August 4, 2018. Answers (1)
- Citing six reasons, justify why an accounting officer of a procuring entity, may, at any time, prior to notification of tender award, terminate or...(Solved)
Citing six reasons, justify why an accounting officer of a procuring entity, may, at any time , prior to notification of tender award, terminate or cancel procurement or asset disposal proceedings without entering into a contract.
Date posted: July 23, 2018. Answers (1)
- What is cost accounting?(Solved)
What is cost accounting?
Date posted: July 11, 2018. Answers (1)
- List the purposes of the trial balance(Solved)
List the purposes of the trial balance
Date posted: June 25, 2018. Answers (1)
- What are the setbacks associated with group incentive schemes?(Solved)
What are the setbacks associated with group incentive schemes?
Date posted: June 24, 2018. Answers (1)
- From the following information prepare a cost statement clearly showing the various components of the cost of production (20 Marks)
Sh.
stock on 1st January 2007 48,000
Raw materials 9,800
work in...(Solved)
From the following information prepare a cost statement clearly showing the various components of the cost of production (20 Marks)
Sh.
stock on 1st January 2007 48,000
Raw materials 9,800
work in progress 120,000
finished goods 148,000
wages paid to the factory workers 52,000
factory insurance 400,000
plant balance on 1st January 2007 180,000
factory rent 200,000
cleaning costs 350,000
purchase of raw materials
stocks at 31st December 2007
Raw materials 21,000
work in progress 6,000
carriage on raw materials 42,000
return of raw materials to suppliers 6,200
salary of marketing manager 200,000
fixed admission expenses 140,000
salesman commission 60,000
Date posted: June 20, 2018. Answers (1)
- Define managerial accounting(Solved)
Define managerial accounting
Date posted: June 16, 2018. Answers (1)
- What are the transactions to be excluded in computing national income?(Solved)
What are the transactions to be excluded in computing national income?
Date posted: June 11, 2018. Answers (1)
- What are the differences between ledger entries of cash transaction and ledger entries for credit transactions?(Solved)
What are the differences between ledger entries of cash transaction and ledger entries for credit transactions?
Date posted: May 25, 2018. Answers (1)
- Auditors carry out various audit assignments. In relation to the above statement, explain four non-assurance assignments that auditors undertake(Solved)
Auditors carry out various audit assignments. In relation to the above statement, explain four non-assurance assignments that auditors undertake.
Date posted: May 22, 2018. Answers (1)
- Discuss the problems of Cross Sectional Analysis in accounting.(Solved)
Discuss the problems of Cross Sectional Analysis in accounting.
Date posted: May 22, 2018. Answers (1)
- Outline the limitations of financial ratios.(Solved)
Outline the limitations of financial ratios.
Date posted: May 22, 2018. Answers (1)
- Discuss the uses of financial ratios.(Solved)
Discuss the uses of financial ratios.
Date posted: May 22, 2018. Answers (1)
- Outline the agency costs incurred by shareholders in trying to control management behavior and actions.(Solved)
Outline the agency costs incurred by shareholders in trying to control management behavior and actions.
Date posted: May 22, 2018. Answers (1)
- Outline the actions that a shareholder may take which may conflict the interest of the government as the principal.(Solved)
Outline the actions that a shareholder may take which may conflict the interest of the government as the principal.
Date posted: May 22, 2018. Answers (1)
- Examples of actions by shareholders through management that could lead to a conflict between them and creditors
(Solved)
Examples of actions by shareholders through management that could lead to a conflict between them and creditors
Date posted: May 22, 2018. Answers (1)
- Give examples of decisions by managers which would result in a conflict with shareholders.(Solved)
Give examples of decisions by managers which would result in a conflict with shareholders.
Date posted: May 22, 2018. Answers (1)
- State five the disadvantage of management accounting(Solved)
State five the disadvantage of management accounting.
Date posted: April 24, 2018. Answers (1)
- Clearly, give the differences between management accounting and financial accounting(Solved)
Clearly, give the differences between management accounting and financial accounting.
Date posted: April 24, 2018. Answers (1)
- Describe the functions of a management accountant(Solved)
Describe the functions of a management accountant.
Date posted: April 24, 2018. Answers (1)