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1. written representation (ISA 580) 2. COMPARATIVE INFORMATION – CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS (ISA 710) Khawar Shahzad Jaffar ACCA, CPA


ISA 580 – Introduction Written Representations as Audit Evidence 3. 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. Accordingly, similar to responses to inquiries, written representations are audit evidence. 4. 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.


ISA 580 – Objectives 6. 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 ISAs; and

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.


ISA 580 – Definition 7. For purposes of the ISAs, the following term has the meaning attributed below: Written representation – 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. 9. For purposes of this ISA, 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.


ISA 580 – Requirements Management from whom Written Representations Requested 9. The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned. Written Representations about Management’s Responsibilities Preparation of the Financial Statements 11.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.


ISA 580 – Requirements Information Provided and Completeness of Transactions 11.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; and

b.

All transactions have been recorded and are reflected in the financial statements.

Description of Management’s Responsibilities in the Written Representations 13.Management’s responsibilities shall be described in the written representations required by paragraphs 10 and 11 in the manner in which these responsibilities are described in the terms of the audit engagement.


ISA 580 – Requirements Other Written Representations 13.Other ISAs 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. Date of and Period(s) Covered by Written Representations 15.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.


ISA 580 – Requirements Form of Written Representations 15.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 10 or 11, the relevant matters covered by such statements need not be included in the representation letter. Doubt as to the Reliability of Written Representations and Requested Written Representations Not Provided Doubt as to the Reliability of Written Representations 17.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.


ISA 580 – Requirements 17.In particular, if written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the 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. 18.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 ISA 705, having regard to the requirement in paragraph 20 of this ISA.


ISA 580 – Requirements Requested Written Representations Not Provided 19.If management does not provide one or more of the requested written representations, the auditor shall: 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 ISA 705, having regard to the requirement in paragraph 20 of this ISA.


ISA 580 – Requirements Written Representations Responsibilities

about

Management’s

20. The auditor shall disclaim an opinion on the financial statements in accordance with ISA 705 if: 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.


ISA 710 – Introduction 2. The nature of the comparative information that is presented in an entity’s financial statements depends on the requirements of the applicable financial reporting framework. There are two different broad approaches to the auditor’s reporting responsibilities in respect of such comparative information: corresponding figures and comparative financial statements. The approach to be adopted is often specified by law or regulation but may also be specified in the terms of engagement. 3. The essential audit reporting differences between the approaches are: a.

For corresponding figures, the auditor’s opinion on the financial statements refers to the current period only; whereas

b.

For comparative financial statements, the auditor’s opinion refers to each period for which financial statements are presented.

This ISA addresses separately the auditor’s reporting requirements for each approach.


ISA 710 – Objectives Objectives 5. The objectives of the auditor are: a. To obtain sufficient appropriate audit evidence about whether the comparative information included in the financial statements has been presented, in all material respects, in accordance with the requirements for comparative information in the applicable financial reporting framework; and b. To report in accordance with the auditor’s reporting responsibilities.


ISA 710 – Definitions 6. For purposes of the ISAs, the following terms have the meanings attributed below: a.

Comparative information – The amounts and disclosures included in the financial statements in respect of one or more prior periods in accordance with the applicable financial reporting framework.

b.

Corresponding figures – Comparative information where amounts and other disclosures for the prior period are included as an integral part of the current period financial statements, and are intended to be read only in relation to the amounts and other disclosures relating to the current period (referred to as “current period figures”). The level of detail presented in the corresponding amounts and disclosures is dictated primarily by its relevance to the current period figures.


ISA 710 – Definitions c.

Comparative financial statements – Comparative information where amounts and other disclosures for the prior period are included for comparison with the financial statements of the current period but, if audited, are referred to in the auditor’s opinion. The level of information included in those comparative financial statements is comparable with that of the financial statements of the current period.

For purposes of this ISA, references to “prior period” should be read as “prior periods” when the comparative information includes amounts and disclosures for more than one period.


ISA 710 – Requirements Audit Procedures 7. The auditor shall determine whether the financial statements include the comparative information required by the applicable financial reporting framework and whether such information is appropriately classified. For this purpose, the auditor shall evaluate whether: a.

The comparative information agrees with the amounts and other disclosures presented in the prior period or, when appropriate, have been restated; and

b.

The accounting policies reflected in the comparative information are consistent with those applied in the current period or, if there have been changes in accounting policies, whether those changes have been properly accounted for and adequately presented and disclosed.


ISA 710 – Requirements 8. If the auditor becomes aware of a possible material misstatement in the comparative information while performing the current period audit, the auditor shall perform such additional audit procedures as are necessary in the circumstances to obtain sufficient appropriate audit evidence to determine whether a material misstatement exists. If the auditor had audited the prior period’s financial statements, the auditor shall also follow the relevant requirements of ISA 560. If the prior period financial statements are amended, the auditor shall determine that the comparative information agrees with the amended financial statements. 9. As required by ISA 580, the auditor shall request written representations for all periods referred to in the auditor’s opinion. The auditor shall also obtain a specific written representation regarding any restatement made to correct a material misstatement in prior period financial statements that affect the comparative information.


ISA 710 – Requirements Audit Reporting Corresponding Figures 10.When corresponding figures are presented, the auditor’s opinion shall not refer to the corresponding figures except in the circumstances described in paragraphs 11, 12, and 14. 11.If the auditor’s report on the prior period, as previously issued, included a qualified opinion, a disclaimer of opinion, or an adverse opinion and the matter which gave rise to the modification is unresolved, the auditor shall modify the auditor’s opinion on the current period’s financial statements. In the Basis for Modification paragraph in the auditor’s report, the auditor shall either:


ISA 710 – Requirements a.

Refer to both the current period’s figures and the corresponding figures in the description of the matter giving rise to the modification when the effects or possible effects of the matter on the current period’s figures are material; or

b.

In other cases, explain that the audit opinion has been modified because of the effects or possible effects of the unresolved matter on the comparability of the current period’s figures and the corresponding figures.

12.If the auditor obtains audit evidence that a material misstatement exists in the prior period financial statements on which an unmodified opinion has been previously issued, and the corresponding figures have not been properly restated or appropriate disclosures have not been made, the auditor shall express a qualified opinion or an adverse opinion in the auditor’s report on the current period financial statements, modified with respect to the corresponding figures included therein.


ISA 710 – Requirements Prior Period Financial Statements Audited by a Predecessor Auditor 13.If the financial statements of the prior period were audited by a predecessor auditor and the auditor is not prohibited by law or regulation from referring to the predecessor auditor’s report on the corresponding figures and decides to do so, the auditor shall state in an Other Matter paragraph in the auditor’s report: a.

That the financial statements of the prior period were audited by the predecessor auditor;

b.

The type of opinion expressed by the predecessor auditor and, if the opinion was modified, the reasons therefore; and

c.

The date of that report.


ISA 710 – Requirements Prior Period Financial Statements Not Audited 14.If the prior period financial statements were not audited, the auditor shall state in an Other Matter paragraph in the auditor’s report that the corresponding figures are unaudited. Such a statement does not, however, relieve the auditor of the requirement to obtain sufficient appropriate audit evidence that the opening balances do not contain misstatements that materially affect the current period’s financial statements. Comparative Financial Statements 16.When comparative financial statements are presented, the auditor’s opinion shall refer to each period for which financial statements are presented and on which an audit opinion is expressed.


ISA 710 – Requirements 16.When reporting on prior period financial statements in connection with the current period’s audit, if the auditor’s opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor shall disclose the substantive reasons for the different opinion in an Other Matter paragraph in accordance with ISA 706. Prior Period Financial Statements Audited by a Predecessor Auditor 18.If the financial statements of the prior period were audited by a predecessor auditor, in addition to expressing an opinion on the current period’s financial statements, the auditor shall state in an Other Matter paragraph: a.

that the financial statements of the prior period were audited by a predecessor auditor;


ISA 710 – Requirements b.

the type of opinion expressed by the predecessor auditor and, if the opinion was modified, the reasons therefore; and

c.

the date of that report,

unless the predecessor auditor’s report on the prior period’s financial statements is reissued with the financial statements. 18.If the auditor concludes that a material misstatement exists that affects the prior period financial statements on which the predecessor auditor had previously reported without modification, the auditor shall communicate the misstatement with the appropriate level of management and, unless all of those charged with governance are involved in managing the entity, those charged with governance and request that the predecessor auditor be informed. If the prior period financial statements are amended, and the predecessor auditor agrees to issue a new auditor’s report on the amended financial statements of the prior period, the


ISA 710 – Requirements Prior Period Financial Statements Not Audited 19. If the prior period financial statements were not audited, the auditor shall state in an Other Matter paragraph that the comparative financial statements are unaudited. Such a statement does not, however, relieve the auditor of the requirement to obtain sufficient appropriate audit evidence that the opening balances do not contain misstatements that materially affect the current period’s financial statements.

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