HKSA 580 - Written Representations (Condensed)
| Section | Key Concept | Brief Description |
|---|---|---|
| Introduction | Scope & Nature of Written Representations | HKSA 580 covers the auditor's responsibility to obtain written representations from management. Written representations are necessary audit evidence but are not sufficient on their own. |
| Objectives | Auditor's Goals | Obtain representations on management's fulfillment of responsibilities, support other audit evidence, and respond appropriately if representations are not provided. |
| Definitions | Written Representation | A written statement from management to confirm matters or support audit evidence. Excludes financial statements, assertions, and supporting books/records. |
| Requirements | Management, Responsibilities, Other Representations | Request from management with appropriate responsibilities. Mandatory representations on financial statement preparation and completeness of information. Additional representations may be needed. |
| Date & Form | Timing and Format | Date as near as practicable to, but not after, the auditor's report date. Must be in a representation letter addressed to the auditor. |
| Reliability & Non-Provision | Handling Inconsistencies and Failures | If inconsistent with other evidence, perform procedures to resolve. If not provided, discuss with management, reevaluate integrity, and consider effect on opinion. |
| Disclaimer of Opinion | Consequences of Unreliable or Missing Representations | Must disclaim an opinion if management integrity is in doubt or if mandatory representations are not provided. |
Introduction & Scope
Scope of HKSA 580
HKSA 580 deals with the auditor's responsibility to obtain written representations from management and, where appropriate, those charged with governance in an audit of financial statements.
Written Representations as Audit Evidence
Audit evidence is the information used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Written representations are necessary information that the auditor requires in connection with the audit of the entity's financial statements.
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
- Specific assertions
Effective Date
This HKSA is effective for audits of financial statements for periods beginning on or after 15 December 2009.
Objectives & Definitions
Objectives of the Auditor
| Objective | Description |
|---|---|
| (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 HKSAs |
| (c) | To respond appropriately to written representations provided by management and, where appropriate, those charged with governance, or if management or, where appropriate, those charged with governance do not provide the written representations requested by the auditor |
Definition of Written Representation
Written representation โ 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
- Supporting books and records
For purposes of this HKSA, references to 'management' should be read as 'management and, where appropriate, those charged with governance.'
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
Management from Whom Written Representations Requested
Application Guidance
Written representations are requested from those responsible for the preparation of the financial statements. These individuals may vary depending on:
- The governance structure of the entity
- Relevant law or regulation
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
- Chief financial officer
- Other equivalent persons in entities that do not use such titles
Due to its responsibility for the preparation 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 the financial statements and the assertions therein on which to base the written representations.
Management's Inquiries
Management may make inquiries of others who participate in preparing and presenting the financial statements, including:
| Individual | Specialized Knowledge Area |
|---|---|
| Actuary | Actuarially determined accounting measurements |
| Staff engineers | Environmental liability measurements |
| Internal counsel | Provisions for legal claims |
Qualifying Language
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.
Written Representations about Management's Responsibilities
Preparation of the Financial Statements
Information Provided and Completeness of Transactions
(a) It has provided the auditor with all relevant information and access as agreed in the terms of the audit engagement; AND
(b) All transactions have been recorded and are reflected in the financial statements.
Description of Management's Responsibilities
Application Guidance
Audit evidence obtained during the audit that management has fulfilled the responsibilities referred to in paragraphs 10 and 11 is NOT sufficient without obtaining confirmation from management that it believes that it has fulfilled those responsibilities.
The auditor may also ask management to reconfirm its acknowledgement and understanding of those responsibilities in written representations. This is particularly appropriate when:
| Situation | Description |
|---|---|
| Personnel changes | Those who signed the terms of the audit engagement on behalf of the entity no longer have the relevant responsibilities |
| Stale terms | The terms of the audit engagement were prepared in a previous year |
| Misunderstanding | There is any indication that management misunderstands those responsibilities |
| Changed circumstances | Changes in circumstances make it appropriate to do so |
Other Written Representations & Threshold
Other Written Representations
Additional Written Representations about the Financial Statements
They may include representations about:
- Whether the selection and application of accounting policies are appropriate
- Whether matters such as the following have been recognized, measured, presented or disclosed in accordance with that framework:
- Plans or intentions that may affect the carrying value or classification of assets and liabilities
- Liabilities, both actual and contingent
- Title to, or control over, assets, the liens or encumbrances on assets, and assets pledged as collateral
- Aspects of laws, regulations and contractual agreements that may affect the financial statements, including non-compliance
Additional Written Representations about Information Provided
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
When obtaining evidence about, or evaluating, judgments and intentions, the auditor may consider one or more of the following:
| Factor | Description |
|---|---|
| Past history | The entity's past history in carrying out its stated intentions |
| Reasons | The entity's reasons for choosing a particular course of action |
| Ability | The entity's ability to pursue a specific course of action |
| Consistency | 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 |
Communicating a Threshold Amount
HKSA 450 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, Form & Communication
Date of and Period(s) Covered by Written Representations
Application Guidance
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.
Updated Written Representations: 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.
Coverage of All Periods: The written representations are for all periods referred to in the auditor's report because management needs to reaffirm that the written representations it previously made with respect to the prior periods remain appropriate.
New Management: Situations may arise where current management were not present during all periods referred to in the auditor's report. This fact does NOT diminish such persons' responsibilities for the financial statements as a whole.
Form of Written Representations
Factors Affecting Determination of Public Statement
| Factor | Description |
|---|---|
| Content | Whether the statement includes confirmation of the fulfillment of the responsibilities referred to in paragraphs 10 and 11 |
| Approval | Whether the statement has been given or approved by those from whom the auditor requests the relevant written representations |
| Timing | 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 |
Communication with Those Charged with Governance
HKSA 260 (Revised) requires the auditor to communicate with those charged with governance the written representations which the auditor has requested from management.
Doubt as to Reliability & Non-Provision
Doubt as to the Reliability of Written Representations
Requested Written Representations Not Provided
(a) Discuss the matter with management;
(b) Reevaluate 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 HKSA 705 (Revised), having regard to the requirement in paragraph 20 of this HKSA.
Written Representations about Management's Responsibilities
(a) The auditor concludes that there is sufficient doubt about the integrity of management such that the written representations required by paragraphs 10 and 11 are not reliable; OR
(b) Management does not provide the written representations required by paragraphs 10 and 11.
Modified Written Representations
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.
| Example | Explanation |
|---|---|
| Modification regarding non-compliance | The written representation about management's fulfillment of its responsibility for the preparation 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 in accordance with that framework. The requirement in paragraph 20 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 HKSA 705 (Revised). |
| Modification regarding destroyed information | 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 20 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 HKSA 705 (Revised). |
Appendices & Key Takeaways
Appendices & Key Takeaways
Appendix 1: List of HKSAs Containing Requirements for Written Representations
| HKSA | Topic | Paragraph |
|---|---|---|
| HKSA 240 | Fraud in an Audit of Financial Statements | Paragraph 40 |
| HKSA 250 (Revised) | Consideration of Laws and Regulations | Paragraph 17 |
| HKSA 450 | Evaluation of Misstatements | Paragraph 14 |
| HKSA 501 | Audit EvidenceโSpecific Considerations for Selected Items | Paragraph 12 |
| HKSA 540 (Revised) | Auditing Accounting Estimates and Related Disclosures | Paragraph 37 |
| HKSA 550 | Related Parties | Paragraph 26 |
| HKSA 560 | Subsequent Events | Paragraph 9 |
| HKSA 570 (Revised) | Going Concern | Paragraph 16(e) |
| HKSA 710 | Comparative Information | Paragraph 9 |
| HKSA 720 (Revised) | Other Information | Paragraph 13(c) |
Appendix 2: Illustrative Representation Letter
The illustrative representation letter includes written representations that are required by this and other HKSAs. Key components include:
Financial Statements Section:
- Fulfillment of responsibilities for preparation of financial statements in accordance with HKFRS
- Appropriateness of methods, data, and significant assumptions used in accounting estimates
- Related party relationships and transactions appropriately accounted for and disclosed
- Subsequent events adjusted or disclosed
- Effects of uncorrected misstatements are immaterial
Information Provided Section:
- Provision of access to all relevant information
- All transactions recorded and reflected in financial statements
- Disclosure of results of fraud risk assessment
- Disclosure of all information regarding fraud or suspected fraud
- Disclosure of all known instances of non-compliance with laws and regulations
- Disclosure of identity of related parties and related party relationships and transactions
Key Takeaways Summary Table
| Topic | Key Requirement |
|---|---|
| Nature of Written Representations | Necessary audit evidence but NOT sufficient on their own |
| Source | Management with appropriate responsibilities and knowledge |
| Mandatory Representations | (1) Fulfillment of responsibility for financial statement preparation (2) Provision of all information and completeness of transactions |
| Date | As near as practicable to, but NOT after, auditor's report date |
| Form | Representation letter addressed to the auditor |
| Inconsistency with Other Evidence | Perform procedures to resolve; if unresolved, reconsider management integrity |
| Failure to Provide | Discuss with management, reevaluate integrity, consider effect on opinion |
| Disclaimer Required | If management integrity is in sufficient doubt OR management fails to provide mandatory representations |
| Threshold | Auditor may communicate a threshold amount for representations |
| Coverage | All periods referred to in the auditor's report |
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