SA 580 Written Representations
SA 580
Written Representations
(Effective for audits of financial statements for periods
beginning on or after April 1, 2009)
Contents
Paragraph(s)
Introduction
Scope of this SA......................................................................................... 1
Written Representations as Audit Evidence ......................................... 2-3
Effective Date ............................................................................................ 4
Objectives ................................................................................................ 5
Definition ............................................................................................... 6-7
Requirements
Management from whom Written Representations Requested ................ 8
Written Representations about Management’s Responsibilities .......... 9-11
Other Written Representations ............................................................... 12
Date of and Period(s) Covered by Written Representations.................... 13
Form of Written Representations ............................................................ 14
Doubt as to the Reliability of Written Representations and
Requested Written Representations Not Provided ............................ 15-19
Application and Other Explanatory Material
Written Representations as Audit Evidence ...........................................A1
Management from whom Written Representations Requested ........ A2-A6
Written Representations about Management’s Responsibilities ...... A7-A9
Other Written Representations ..................................................... A10-A13
Communicating a Threshold Amount.....................................................A14
Date of and Period(s) Covered by Written Representations ........ A15-A18
Form of Written Representations .................................................. A19-A21
Published in October, 2008 issue of the Journal.
Communication with Those Charged with Governance ........................A22
Doubt as to the Reliability of Written Representations and
Requested Written Representations Not Provided ....................... A23-A27
Material Modifications to ISA 580, “Written Representations”
Appendix: Illustrative Representation Letter
Standard on Auditing (SA) 580, “Written Representations” should be
read in the context of the “Preface to the Standards on Quality Control,
Auditing, Review, Other Assurance and Related Services”, which sets
out the authority of SAs and SA 200, “Overall Objectives of the
Independent Auditor and the Conduct of an Audit in Accordance with
Standards on Auditing”.
SA 580 2
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.1 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:
(a) To obtain written representations from management and, where
appropriate, those charged with governance that they believe that they
have fulfilled their responsibility for the preparation of the financial
statements and for the completeness of the information provided to the
auditor;
(b) To support other audit evidence relevant to the financial statements or
specific assertions in the financial statements by means of written
representations, if determined necessary by the auditor or required by other
SAs; and
(c) To respond appropriately to written representations provided by
management and, where appropriate, those charged with governance, or if
1 SA 500, “Audit Evidence”, paragraph 5(c).
3 SA 580
management or, where appropriate, those charged with governance do not
provide the written representations requested by the auditor.
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 applicable financial reporting framework; or the preparation
of financial statements that give a true and fair view in accordance with the
applicable 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. A2-A6)
Written Representations about Management’s Responsibilities
Preparation of the Financial Statements
9. The auditor shall request management to provide a written representation
that it has fulfilled its responsibility for the preparation of the financial statements
in accordance with the applicable financial reporting framework, including where
relevant their fair presentation, as set out in the terms of the audit engagement.2
(Ref: Para. A7-A9, A14, A22)
Information Provided and Completeness of Transactions
10. The auditor shall request management to provide a written representation
that:
(a) It has provided the auditor with all relevant information and access as
agreed in the terms of the audit engagement,3 and
2 SA 210, “Agreeing the Terms of Audit Engagements,” paragraph 6(b)(i)
3 SA 210, “Agreeing the Terms of Audit Engagements,” paragraph 6(b)(iii).
SA 580 4
(b) All transactions have been recorded and are reflected in the financial
statements. (Ref: Para. A7-A9, A14, A22)
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 the audit engagement.
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. A10-A13, A14, A22)
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. A15-A18)
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
that 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. A19-A21)
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. A24-A25)
16. In particular, if written representations are inconsistent with other audit
evidence, the auditor shall perform audit procedures to attempt to resolve the
5 SA 580
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. A23)
17. If the auditor concludes that the 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 SA 705(Revised)4,
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:
(a) Discuss the matter with management;
(b) Re-evaluate the integrity of management and evaluate the effect that this
may have on the reliability of representations (oral or written) and audit
evidence in general; and
(c) Take appropriate actions, including determining the possible effect on the
opinion in the auditor’s report in accordance with SA 705(Revised), having
regard to the requirement in paragraph 19 of this SA.
Written Representations about Management’s Responsibilities
19. The auditor shall disclaim an opinion on the financial statements in
accordance with SA 705(Revised) if: (Ref: Para. A26-A27)
(a) The auditor concludes that there is sufficient doubt about the integrity of
management such that the written representations required by paragraphs
9 and 10 are not reliable; or
(b) Management does not provide the written representations required by
paragraphs 9 and 10.
***
Application and Other Explanatory Material
Written Representations as Audit Evidence (Ref: Para. 2)
A1. Written representations are an important source of audit evidence. If
management modifies or does not provide the requested written representations,
it may alert the auditor to the possibility that one or more significant issues may
4 SA 705(Revised), “Modifications to the Opinion in the Independent Auditor’s Report”.
SA 580 6
exist. Further, a request for written, rather than oral, representations in many
cases may prompt management to consider such matters more rigorously,
thereby enhancing the quality of the representations.
Management from Whom Written Representations Requested (Ref:
Para. 8)
A2. Written representations are requested from those responsible for the
preparation and presentation of the financial statements. Those individuals may
vary depending on the governance structure of the entity, and relevant law or
regulation; however, management (rather than those charged with governance)
is often the responsible party. Written representations may therefore be
requested from the entity’s chief executive officer and chief financial officer, or
other equivalent persons in entities that do not use such titles. In some
circumstances, however, other parties, such as those charged with governance,
are also responsible for the preparation and presentation of the financial
statements.
A3. 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.
A4. 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 specialized knowledge relating
to the matters about which written representations are requested. Such
individuals may include:
An actuary responsible for actuarially determined accounting
measurements.
Staff engineers who may have responsibility for and specialized knowledge
about environmental liability measurements.
Internal counsel who may provide information essential to provisions for
legal claims.
A5. 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.
7 SA 580
A6. 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)
A7. Audit evidence obtained during the audit that management has fulfilled the
responsibilities referred to in paragraphs 9 and 10 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 all
relevant information agreed in the terms of the audit engagement without asking
it whether, and receiving confirmation that, such information has been provided.
A8. 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:
Those who signed the terms of the audit engagement on behalf of the entity
no longer have the relevant responsibilities;
The terms of the audit engagement were prepared in a previous year;
There is any indication that management misunderstands those
responsibilities; or
Changes in circumstances make it appropriate to do so.
Consistent with the requirement of SA 210,5 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 A5 of this SA).
5 SA 210, “Agreeing the Terms of Audit Engagements,” paragraph 6(b).
SA 580 8
A9. 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
A10. 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:
Whether the selection and application of accounting policies are
appropriate; and
Whether matters such as the following, where relevant under the applicable
financial reporting framework, have been recognized, measured, presented
or disclosed in accordance with that framework:
o Plans or intentions that may affect the carrying value or classification
of assets and liabilities;
o Liabilities, both actual and contingent;
o Title to, or control over, assets, the liens or encumbrances on assets,
and assets pledged as collateral; and
o Aspects of laws, regulations and contractual agreements that may
affect the financial statements, including non-compliance.
Additional Written Representations about Information Provided to the
Auditor
A11. In addition to the written representation required by paragraph 10, the
auditor may consider it necessary to request management to provide a written
representation that it has communicated to the auditor all deficiencies in internal
control of which management is aware.
Written Representations about Specific Assertions
A12. When obtaining evidence about, or evaluating, judgments and intentions,
the auditor may consider one or more of the following:
The entity’s past history in carrying out its stated intentions.
9 SA 580
The entity’s reasons for choosing a particular course of action.
The entity’s ability to pursue a specific course of action.
The existence or lack of any other information that might have been
obtained during the course of the audit that may be inconsistent with
management’s judgment or intent.
A13. 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 sufficient 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)
A14. SA 4506 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)
A15. 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 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.
A16. 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.
A17. The written representations are for all periods referred to in the auditor’s
report because management needs to reaffirm that the written representations it
6 SA 450, “Evaluation of Misstatements Identified during the Audit”, paragraph 5.
SA 580 10
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.
A18. 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)
A19. Written representations are required to be included in a representation
letter addressed to the auditor. Some laws or regulations may, 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:
Whether the statement includes confirmation of the fulfillment of the
responsibilities referred to in paragraphs 9 and 10.
Whether the statement has been given or approved by those from whom
the auditor requests the relevant written representations.
Whether a copy of the statement is provided to the auditor as near as
practicable to, but not after, the date of the auditor’s report on the financial
statements (see paragraph 13).
A20. 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.
A21. The Appendix to this Standard provides an illustrative example of a
representation letter.
11 SA 580
Communication with Those Charged with Governance (Ref: Para. 9-
10, 12)
A22. SA 260(Revised)7 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)
A23. 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.
A24. 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 misrepresentation 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.
A25. SA 2308 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.
Written Representations about Management’s Responsibilities (Ref: Para.
19)
A26. As explained in paragraph A7, the auditor is not able to judge solely on
other audit evidence whether management has fulfilled the responsibilities
referred to in paragraphs 9 and 10. Therefore, if, as described in paragraph
19(a), the auditor concludes that the written representations about these matters
7 SA 260(Revised), “Communication with Those Charged with Governance”, paragraph 16(c)(ii).
8 SA 230, “Audit Documentation”, refer paragraph 8 and 10.
SA 580 12
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.
SA 705(Revised) requires the auditor to disclaim an opinion on the financial
statements in such circumstances.9
A27. 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:
The written representation about management’s fulfillment of its
responsibility for the preparation and presentation of the financial
statements may state that management believes that, except for material
non-compliance with a particular requirement of the applicable financial
reporting framework, the financial statements are prepared and presented
in accordance with that framework. The requirement in paragraph 19 does
not apply because the auditor concluded that management has provided
reliable written representations. However, the auditor is required to consider
the effect of the non-compliance on the opinion in the auditor’s report in
accordance with SA 705(Revised).
The written representation about the responsibility of management to
provide the auditor with all relevant information agreed in the terms of the
audit engagement may state that management believes that, except for
information destroyed in a fire, it has provided the auditor with such
information. The requirement in paragraph 19 does not apply because the
auditor concluded that management has provided reliable written
representations. However, the auditor is required to consider the effects of
the pervasiveness of the information destroyed in the fire on the financial
statements and the effect thereof on the opinion in the auditor’s report in
accordance with SA 705(Revised).
Material Modifications to ISA 580, “Written
Representations”
Deletions
Paragraph A9 of the Application Section of ISA 580 (A9 of SA 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
9 SA 705(Revised), paragraph 9.
13 SA 580
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 Paragraph A9 in ISA 580, highlighting the fact that in
case of certain entities, the need of additional representations may arise, has
been retained.
SA 580 14
Appendix
(Ref: Para. A21)
Illustrative Representation Letter
The following illustrative letter includes written representations that are required
by this and other SAs in effect for audits of financial statements for period
beginning on or after 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)10 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.
(Entity Letterhead)
(To Auditor) (Date)
This representation letter is provided in connection with your audit of the financial
statements of ABC Company for the year ended March 31, 20XX11 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.
We confirm that (,to the best of our knowledge and belief, having made such
inquiries as we considered necessary for the purpose of appropriately informing
ourselves ):
Financial Statements
We have fulfilled our responsibilities, as set out in the terms of the audit
engagement dated [insert date], for the preparation of the financial
statements in accordance with Financial Reporting Standards; in particular
the financial statements are fairly presented (or give a true and fair view) in
accordance with the applicable accounting standards in India.
Significant assumptions used by us in making accounting estimates,
including those measured at fair value, are reasonable. (SA 540)
Related party relationships and transactions have been appropriately
accounted for and disclosed in accordance with the requirements of
applicable accounting standards in India. (SA 550)12
10 SA 570(Revised), “Going Concern”.
11 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.
12 SA 550, “Related Parties”.
15 SA 580
All events subsequent to the date of the financial statements and for which
applicable accounting standards in India require adjustment or disclosure
have been adjusted or disclosed. (SA 560)
The effects of uncorrected misstatements are immaterial, both individually
and in the aggregate, to the financial statements as a whole. A list of the
uncorrected misstatements is attached to the representation letter.(SA 450)
[Any other matters that the auditor may consider appropriate (see
paragraph A10 of this SA).]
Information Provided
We have provided you with:
o Access to all information of which we are aware that is relevant to the
preparation of the financial statements such as records,
documentation and other matters;
o Additional information that you have requested from us for the
purpose of the audit; and
o Unrestricted access to persons within the entity from whom you
determined it necessary to obtain audit evidence.
All transactions have been recorded in the accounting records and are
reflected in the financial statements.
We have disclosed to you the results of our assessment of the risk that the
financial statements may be materially misstated as a result of fraud. (SA
240).
We have disclosed to you all information in relation to fraud or suspected
fraud that we are aware of and that affects the entity and involves:
o Management;
o Employees who have significant roles in internal control; or
o Others where the fraud could have a material effect on the financial
statements. (SA 240)
We have disclosed to you all information in relation to allegations of fraud,
or suspected fraud, affecting the entity’s financial statements
communicated by employees, former employees, analysts, regulators or
others. (SA 240)
SA 580 16
We have disclosed to you all known instances of non-compliance or
suspected non-compliance with laws and regulations whose effects should
be considered when preparing financial statements. (SA 250)13
We have disclosed to you the identity of the entity’s related parties and all
the related party relationships and transactions of which we are aware. (SA
550)14
[Any other matters that the auditor may consider necessary (see paragraph
A11 of this SA).]
Management Management
13 SA 250, “Consideration of Laws and Regulations in an Audit of Financial Statements”.
14 SA 550, “Related Parties”.
17 SA 580