An illustrative management representation letter provides an example of how management could present this.
The illustrative management representation letter includes a sample paragraph containing a qualitative discussion of materiality.
GIBSON, CPA, is a technical manager in the AICPA audit and attest division. GERSON, CPA, is a partner of Coopers & Lybrand and vice-chairman of the ASB. Gibson is an employee of the American Institute of CPAs and her views, as expressed in this article, do not necessarily reflect the views of the AICPA.
Official positions are determined through certain specific committee procedures, due process and deliberation.
Both the old and new statements explain that management will make various representations to the auditor throughout the course of an audit, mainly as a response to specific questions or through the financial statements themselves.
Both also say such management representations, while part of the evidential matter obtained during an audit, are not substitutes for appropriate auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit. 85 includes new guidance requiring the auditor to investigate the circumstances and consider the reliability of a representation made if other audit evidence contradicts that representation.
In such a case, an auditor should consider whether the reliance placed on other management representations is appropriate and justified. 85 says an auditor should obtain written representations for all financial statements and periods covered by the auditors reporta concept originally appearing in an appendix to SAS no. The ASB, to reduce misunderstandings and misapplications, placed the guidance into the main body of SAS no. The new statement includes a list of specific management representations that are consistent with representations auditors are obtaining in current practice.
These include information concerning fraud as referred to in SAS no. Also required now is a management representation stating it is managements belief that the financial statements are fairly presented in conformity with GAAP (or a comprehensive basis of accounting other than GAAP).
Because of my limited expertise with generally accepted accounting principles, including financial statement disclosure, I have engaged you to advise me in fulfilling that responsibility.
The new statement encourages representation letters tailored for individual businesses or industries. The new SAS provides guidance on materiality levels that may be stated explicitly, either qualitatively or quantitatively, in the representation letter.