Towards the end of an audit, it is common for the external auditor to seek a letter of representation (written representations) from the management of the client company. Required: Explain why management is sometimes unwilling to sign a letter of representation and describe the actions an external auditor can take if management refuses to sign a letter of representation

Management unwilling to sign and actions if management refuses to sign

  • Management is sometimes unwilling to sign because they feel that auditors should be able to obtain independent evidence in relation to the relevant matters. Alternatively, they may feel that the auditors are trying to shift responsibility for the audit to them;
  • Sometimes, management is genuinely uncertain about whether it is sure of the matters included. However, there are occasions on which management is trying to
    ‗hide‘ from the auditors the fact that the income recorded is incomplete, or the fact that there is an outstanding undisclosed legal claim against the company, for example;
  •  Auditors should attempt to negotiate an agreement, as noted above. A formal letter may not be necessary, if management is able to provide some other written confirmation, such as a note of a meeting. Alternatively, a list of issues may be taken to the client to establish exactly which representations are causing the problem, and the letter redrafted;
  •  If management still refuses to sign, and the auditor feels that the matter is critical to the financial statements, it may be necessary to qualify the audit report with an
    ‗except for‘ (or even disclaimer of) opinion, on the basis of a limitation in the scope of the audit.



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