Classification of Management Representations

The thing to note is which during the course of the audit the auditor obtains various representations from the management which can be classification into three types:

a. Not material to the financial statements.  Examples being queries on errors in book-keeping  or absent documents or

b. Capable of being corroborated through other evidence or

c. Where the knowledge of the facts is confined to the management.  As for example, the management's purpose to close down a most important branch and whether the matter is principally one of judgement and opinion for example the reliability of obsolete stock.

In (a) there is no use for the auditor to obtain separate written representations through the management (b) and.  In (c) however, the auditor should:

A. Make certain which there is no conflicting evidence

B. If he is unable to obtain corroborating evidence, rather then the auditor should get a written confirmation from the management of any representations made.

C. The auditor must decide for himself whether the total of other evidence and the management's written representation are sufficient for him to form an unqualified opinion.

The process adopted is clearly stated in ISA 580. Thus the letter should not involve routine matters but merely matters that are material to the financial statements and the auditor cannot find independent corroborating evidence.  So please notice that the letter of representation is basically one more piece of evidence and the auditor should not rely on it rashly perhaps there are times it is the merely source of evidence unlock to the auditor. Whether a representation through management is contradicted through other audit evidence, the auditor should investigate the circumstances and, where essential, reconsider the reliability of other representations made through management.