Question

What is the nature and purpose of a "letter of representations"? Comment on the quality or strength of the audit evidence yielded by a letter of representations.

Answer 1

Under Auditing standard 2805, The letter of representations is a requirement of the independent auditor to obtain a written representation from their client’s management (PCAOB, n.d.). This is necessary to make management teams accountable for the audit evidence and documentation that they present to their auditors when they are testing the reliability of the information on the financial statements. These statements can be written or oral. This letter does not substitute the audit testing that auditors must conduct to have a reasonable, basis for their opinion. In fact, when these representation letters reflect that management believes that there is alow likelihood or no knowledge of fraud, an auditor can be motivated to find contradicting evidences to the views and to perform professional due care (Harding & Trotman, 2017). It is theduty of an auditor to trust their client so that they do not offend them but to verify everything thatis claimed. Thus, an auditor must perform professional skepticism. The written letter of Representation

Four things the auditor needs to consider which are the reliability of the procedures used, the nature of any exceptions, the evidence provided by other procedures, and if additional evidence is needed