Management Representations

​Representations Case Example: ABC Manufacturing Company

Context

Throughout the audit of ABC Manufacturing Company, auditors gather various pieces of evidence through inquiries, observations, and inspections. Management representations serve as a formal way of corroborating the information obtained during the audit and cover aspects such as acknowledgment of responsibility for the financial statements, confirmation of completeness of records, and disclosure of all relevant information.

Audit Objective

To obtain written representations from ABC Manufacturing Company’s management and, where appropriate, those charged with governance, that they have provided the auditors with all relevant information, acknowledged their responsibilities, and confirmed key matters related to the financial statements and audit.

Types of Audit Evidence and Documentation for Management Representations

1. Preparation of the Representation Letter

• Case: Prepare a draft of the management representation letter, which typically includes the date of the auditor’s report, addresses to the auditor, and is signed by members of management with suitable responsibilities and authority.

• Documentation: Document the draft of the management representation letter, including all the representations requested and the rationale for each, based on the significance to the audit.

2. Specific Representations

• Case: Include specific representations related to the completeness of information provided to the auditors, acknowledgment of responsibility for internal control over financial reporting, disclosure of all significant deficiencies in internal control, and confirmation that all significant events have been disclosed.

• Documentation: Outline each specific representation requested, noting any areas of particular risk or significance identified during the audit that necessitate explicit confirmation.

3. Date and Period Covered

• Case: The representations should be dated as of the date of the auditor’s report and should cover the period up to that date.

• Documentation: Note the date of the representation letter and confirm that it covers all relevant periods and dates significant for the audit conclusions.

4. Management’s Acknowledgment of Responsibility

• Case: Obtain an acknowledgment from management of their responsibility for the fair presentation of the financial statements in accordance with the applicable financial reporting framework and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements.

• Documentation: Document the acknowledgment from management regarding their responsibilities, as reflected in the representation letter.

5. Unaudited Supplementary Information

• Case: If applicable, request representations regarding the completeness and accuracy of unaudited supplementary information included in or accompanying the financial statements.

• Documentation: Document any representations related to unaudited supplementary information, including management’s basis for the preparation and presentation of such information.

6. Receipt and Review of Signed Letter

• Case: Review the signed management representation letter to ensure that it is complete, accurately reflects the auditor’s understanding, and is signed by the appropriate members of management and, where appropriate, those charged with governance.

• Documentation: Confirm receipt of the signed representation letter, noting the date of receipt and the individuals who signed the letter. Document the review and any follow-up actions taken in response to the representations made.

7. Communication with Those Charged with Governance

• Case: Communicate with those charged with governance regarding the management representations obtained, particularly if there are concerns about the representations or if management refuses to provide certain representations.

• Documentation: Summarize communications with those charged with governance about management representations, including any concerns raised and how they were addressed.

Conclusion

Management representations are an integral part of the audit evidence and provide a basis for the auditor to conclude on the completeness and reliability of the information provided during the audit. Documenting the process of obtaining, reviewing, and evaluating management representations ensures that auditors have a clear record of the assurances provided by management and supports the overall audit conclusions. This documentation is essential for demonstrating that the auditors have obtained all necessary confirmations from management regarding critical aspects of the financial statements and the audit.