AI 21: Management Representations: Auditing Interpretations of AS 2805
The auditor should be aware of and consider auditing interpretations applicable to his or her audit. If the auditor does not apply the auditing guidance included in an applicable auditing interpretation, the auditor should be prepared to explain how he or she complied with the provisions of the auditing standard addressed by such auditing guidance.
View AS 2805 , Management Representations
1. Management Representations on Violations and Possible Violations of Laws and Regulations
.01 Question —AS 2805, Management Representations , lists matters for which the auditor ordinarily obtains written representations from management. One of those matters is: Violations or possible violations of laws or regulations whose effects should be considered for disclosure in financial statements or as a basis for recording a loss contingency.
.02 Guidance on evaluating the need to disclose litigation, claims, and assessments that may result from possible violations is provided by FASB Statement No. 5, Accounting for Contingencies [AC section C59]. AS 2405, Illegal Acts by Clients , provides guidance on evaluating the materiality of illegal acts. Does the representation regarding "possible violations" include matters beyond those described in FASB Statement No. 5 [AC section C59] and AS 2405?
.03 Interpretation —No. AS 2805 did not change the relevant criteria for evaluating the need for disclosure of violations and possible violations of laws or regulations. In requesting the representation on possible violations, the auditor is not asking for management's speculation on all possibilities of legal challenges to its actions.
.04 The representation concerns matters that have come to management's attention and that are significant enough that they should be considered in determining whether financial statement disclosures are necessary. It recognizes that these are matters of judgment and that the need for disclosure is not always readily apparent.
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AICPA Issues Advice on Management Representations about Work of Prior Auditors
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The American Institute of CPAs has released a technical practice aid about what auditors should do about asking for a written management representation regarding prior periods that were audited by a previous auditing firm.
AICPA Technical Question and Answer (TPA) 8900.11 , “Management Representations Regarding Prior Periods Presented That Were Audited by Predecessor Auditor,” provides nonauthoritative guidance when the prior period financial statements were audited by a predecessor auditor and the predecessor auditor’s report on the prior period’s financial statements has not been reissued.
The document advises that the auditor is not required to obtain a representation letter covering the prior period financial statements because the auditor is not opining on the prior year when making reference to the prior period that was audited by a predecessor auditor. The technical practice aid also discusses when additional representations may be necessary in the current year’s letter.
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COMMENTS
Obtaining Written Representations. .05 Written representations from management should be obtained for all financial statements and periods covered by the auditor's report. 2 For example, if comparative financial statements are reported on, the written representations obtained at the completion of the most recent audit should address all periods ...
2 An illustrative representation letter from management is contained in paragraph .16 of ap-pendix A, "Illustrative Management Representation Letter". ... Accounting Standards Board (FASB) Accounting Standards Codifica-tion (ASC) 275, Risks and Uncertainties. o. Violations or possible violations of laws or regulations whose effects
1. Management Representations on Violations and Possible Violations of Laws and Regulations. .01 Question —AS 2805, Management Representations, lists matters for which the auditor ordinarily obtains written representations from management. One of those matters is: Violations or possible violations of laws or regulations whose effects should ...
Written Representations 839 AU-CSection580 Written Representations Source:SASNo.122;SASNo.135;SASNo.136. Effective for audits of financial statements for periods ending on or
standard form & MAY ADD SPECIFIC ITEMS when considered necessary) Client representation is a weak form of "evidential matter"- but more prevalent than it probably ought to be. Client makes specific written representations in a letter called the "Management representation letter"at the conclusion of the audit (dated same date as the audit).
compliance with Public Company Accounting Oversight Board ("PCAOB") standards and rules and other applicable ... related to management representation letters and retention of audit documentation. 2 | Deloitte & Touche LLP, PCAOB Release No. 104-2021-002A, December 17, 2020 ... Instances of non-compliance with PCAOB standards and rules ...
2. Illustrative Representation Letter for a Review of Interim Financial Information (Statements) [This representation letter is similar in detail to the management-representation letter used for the audit of the financial statements of the prior year and thus need not refer to the written management representations received in the most recent ...
1666 K Street NW Washington, DC 20006 Office: (202) 207-9100 Fax: (202) 862-8430 www.pcaobus.org AUDITING STANDARDS OF THE PUBLIC COMPANY ACCOUNTING
3. Auditing Standards No. 6101: Letters for Underwriters and Certain Other Requesting Parties, PCAOB ("AS 6101") 4. Form of Comfort Letter per Examples A, B and F annexed to AS 6101 5. Top 10 Practice Tips: Comfort Letters, Lexis Practice Advisor (2021) 6. Form of SAS 72 Representation Letter under AS 6101 7. Further Reading a.
A management representation letter is a form letter written by a company's external auditors, which is signed by senior company management. The letter attests to the accuracy of the financial statements that the company has submitted to the auditors for their analysis. The CEO and the most senior accounting person (such as the CFO) are usually ...
12. PCAOB standards provide that the auditor should obtain written representations from management "for all financial statements and periods covered by the auditor's report."6 PCAOB standards also specify that the auditor should provide a copy of the representation letter to the audit committee if management has not already done so.7 PCAOB
It may be used in the circumstances described in paragraph .12 of this section. Management need not repeat all of the representations made in the previous representation letter. 2. If matters exist that should be disclosed to the auditor, they should be indicated by listing them following the representation.
4110.6 For purposes of Item 5 of the table above, a non-issuer entity could also be a bidder in a Schedule TO or an acquirer in a proxy statement.. 4110.7 As noted in the table above, subsidiary guarantors are considered issuers whose financial statements filed under S-X 3-10 must be audited by a PCAOB-registered firm using PCAOB standards. However, relief from these requirements may be ...
2084 The Standards of Field Work in other Statements on Auditing Standards (see Appendix A [paragraph .66]). Further matters may be communicated by agreement with those charged with governance or management, or in accordance with external requirements..05 The auditor must communicate with those charged with governance
Amount of known misstatement is documented in the management representation letter. b. Estimate of the total likely misstatement is less than a material amount. c. Amount of known misstatement is acknowledged and recorded by the client. ... Under PCAOB auditing standards, every audit report must include a section on critical audit matters ...
Amendments to paragraph .11 have been adopted by the PCAOB and approved by the U.S. Securities and Exchange Commission. The amendments will be effective for audits of financial statements for fiscal years beginning on or after December 15, 2024. See PCAOB Release No. 2024-004, SEC Release No. 34-100773. View the standard as amended.
The PCAOB made certain minor clarifications, including (1) stating that the auditor should make inquiries regarding any changes to or significant new related parties and (2) revising illustrative management representation letters to state that management has made available to the auditor "all financial records and related data, including the ...
AS 1301: Communications with Audit Committees. An amendment to Appendix B has been adopted by the PCAOB and approved by the U.S. Securities and Exchange Commission. The amendment will be effective for audits of financial statements for fiscal years ending on or after June 15, 2025. See PCAOB Release No. 2023-008, SEC Release No. 34-99060.
The American Institute of CPAs has released a technical practice aid about what auditors should do about asking for a written management representation regarding prior periods that were audited by a previous auditing firm. AICPA Technical Question and Answer (TPA) 8900.11, "Management Representations Regarding Prior Periods Presented That ...
Introduction. .01 This section provides guidance to accountants for performing and reporting on the results of engagements to issue letters for underwriters and certain other requesting parties described in and meeting the requirements of paragraph .03, .04, or .05 (commonly referred to as "comfort letters") in connection with financial ...
Appendix B - Additional Illustrative Representations.17 . 1. As discussed in paragraph .07 of this section, representation letters ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity's business or industry.
AS 2505A: Appendix - Illustrative Audit Inquiry Letter to Legal Counsel. In connection with an audit of our financial statements at (balance sheet date) and for the (period) then ended, management of the Company has prepared, and furnished to our auditors (name and address of auditors), a description and evaluation of certain contingencies, including those set forth below involving matters ...
Appendix C - Illustrative Management Representation Letters for a Review of Interim Financial Information.56 . C1. The following illustrative management representation letters, which relate to a review of interim financial information prepared in conformity with generally accepted accounting principles, are presented for illustrative purposes only.