Question Tag: Written Representation

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  • 15 Marks

AAA – May 2016 – L3 – Q6 – Audit Reporting

Discuss audit work and written representation letter for legal claims, outstanding balances, and investments.

Bob Removals Limited is a removals company. In the year ended December 31, 2015, the company made a trading profit of N800,000. You are the manager in charge of the audit.
The following issues have arisen:

(i) A customer is suing the company for N1 million for damage caused to antique furniture. The company is defending the claim and believes that the furniture was a reproduction as opposed to antique and therefore worth only N100,000.
(ii) A balance due from Safe Storage in respect of sub-contract work, of N300,000, has been outstanding for over six months. Your firm has been asked by Bob Removals’ accountant not to write to Safe Storage for direct confirmation of this amount as the latter company objects to such letters. You have been assured by the accountant that the relationship between the two companies is good and that the outstanding balance will be paid.
(iii) Bob Removals has recently invested in four new removal vans and is currently carrying out extensive refurbishment of its premises. As a result of this expenditure, the company has reached its overdraft limit of N500,000.

Required:

For each of the above issues:
a. State, with reasons, the audit work that you would expect to find when undertaking your review of the audit working papers for the year ended December 31, 2015.
b. Draft the relevant sections dealing with these issues of the written representation letter you would wish the directors to sign.

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  • 30 Marks

AA – May 2023 – L2 – SA – Q1 – Audit Evidence

Explaining objectives and steps in obtaining written representation and handling contradictions in audit evidence.

Promise and Treasure are two good childhood friends. After their secondary education, Promise traveled abroad to further his education and obtained his degrees there. Treasure attended a university in Nigeria and graduated with a second-class lower degree. During his time abroad, Promise met some foreign associates and decided to start a company in Nigeria with Treasure.

The company, named Promise and Treasure Company Nigeria Limited, specializes in importing steel products with future plans to set up a local factory. The first-year accounts were prepared as of December 31, 2020. Your firm has been appointed as auditors for the company. Upon completing the audit, you requested a written representation from management. The Managing Director found this request unusual, as he believed all necessary information and documents had already been provided.

Required:

a. Explain to the Managing Director the objectives of the auditor in obtaining a written representation as per ISA 580. (4 Marks)

b. State the steps the auditor should take if a representation by management is contradicted by other audit evidence. (6 Marks)

c. State THREE matters that are required of management in the letter of representation in line with ISA 580, requiring specific representation from management. (3 Marks)

d. Highlight SEVEN aspects of the form and contents of a letter of representation. (14 Marks)

e. State the steps the auditor should take if management refuses to provide the requested written representation. (3 Marks)

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  • 20 Marks

AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

a) Pato Plc offers internet streaming services for films and TV programs and subscription services. You are the recently appointed Senior Manager of Tinka Partners responsible for the audit of Pato Plc. You are planning the audit as required by ISA 300: Planning an audit of financial statements and have come across these two issues following a discussion between the audit engagement partner and a representative of the client’s management:

Legal Case:
In January 2022, a legal case was initiated against Pato Plc by Filmco Plc, a film production company. Filmco Plc claims that Pato Plc has infringed on its copyright by streaming a film in specific countries for which a license has not been acquired. Pato Plc insists that the film is covered by a general license which was acquired several years ago. Pato Plc’s Finance Director is not willing to recognize the legal claim within the financial statements as he is confident that the claim against the company will not be successful, and he does not want to discuss it further with the audit team, emphasizing that there is no relevant documentation available for evaluation at this time.
(7 marks)

Annual Incentive Scheme:
For several years, Pato Plc has operated an annual incentive scheme for staff, under the terms of which employees are eligible to receive an annual incentive payment linked to the achievement of selected targets. The scheme operates for all employees, with some employees’ targets linked to profitability, while others are aligned to non-financial measures including customer satisfaction, customer loyalty, and customer complaints, among others. Participants in the scheme are entitled to earn a maximum annual incentive payment of 5% of their salary. Approximately 6,590 employees, including the senior executive directors, are entitled to participate in the annual incentive scheme. Last year the average bonus payment was GH¢1,250 per participant.
(7 marks)

Required:
Evaluate the principal audit risk(s) in planning the audit of Pato Plc.

b) The Management of Pato Plc has decided not to provide the audit firm with the written representation for the legal case as they feel that it is unnecessary. The potential provision for the legal case is 6% of profit before tax.
Required:
As the Auditors of Pato Plc, discuss the steps you should take and the impact on the audit report in relation to the refusal to provide the written representation.
(6 marks)

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  • 15 Marks

AAA – May 2016 – L3 – Q6 – Audit Reporting

Discuss audit work and written representation letter for legal claims, outstanding balances, and investments.

Bob Removals Limited is a removals company. In the year ended December 31, 2015, the company made a trading profit of N800,000. You are the manager in charge of the audit.
The following issues have arisen:

(i) A customer is suing the company for N1 million for damage caused to antique furniture. The company is defending the claim and believes that the furniture was a reproduction as opposed to antique and therefore worth only N100,000.
(ii) A balance due from Safe Storage in respect of sub-contract work, of N300,000, has been outstanding for over six months. Your firm has been asked by Bob Removals’ accountant not to write to Safe Storage for direct confirmation of this amount as the latter company objects to such letters. You have been assured by the accountant that the relationship between the two companies is good and that the outstanding balance will be paid.
(iii) Bob Removals has recently invested in four new removal vans and is currently carrying out extensive refurbishment of its premises. As a result of this expenditure, the company has reached its overdraft limit of N500,000.

Required:

For each of the above issues:
a. State, with reasons, the audit work that you would expect to find when undertaking your review of the audit working papers for the year ended December 31, 2015.
b. Draft the relevant sections dealing with these issues of the written representation letter you would wish the directors to sign.

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  • 30 Marks

AA – May 2023 – L2 – SA – Q1 – Audit Evidence

Explaining objectives and steps in obtaining written representation and handling contradictions in audit evidence.

Promise and Treasure are two good childhood friends. After their secondary education, Promise traveled abroad to further his education and obtained his degrees there. Treasure attended a university in Nigeria and graduated with a second-class lower degree. During his time abroad, Promise met some foreign associates and decided to start a company in Nigeria with Treasure.

The company, named Promise and Treasure Company Nigeria Limited, specializes in importing steel products with future plans to set up a local factory. The first-year accounts were prepared as of December 31, 2020. Your firm has been appointed as auditors for the company. Upon completing the audit, you requested a written representation from management. The Managing Director found this request unusual, as he believed all necessary information and documents had already been provided.

Required:

a. Explain to the Managing Director the objectives of the auditor in obtaining a written representation as per ISA 580. (4 Marks)

b. State the steps the auditor should take if a representation by management is contradicted by other audit evidence. (6 Marks)

c. State THREE matters that are required of management in the letter of representation in line with ISA 580, requiring specific representation from management. (3 Marks)

d. Highlight SEVEN aspects of the form and contents of a letter of representation. (14 Marks)

e. State the steps the auditor should take if management refuses to provide the requested written representation. (3 Marks)

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  • 20 Marks

AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

a) Pato Plc offers internet streaming services for films and TV programs and subscription services. You are the recently appointed Senior Manager of Tinka Partners responsible for the audit of Pato Plc. You are planning the audit as required by ISA 300: Planning an audit of financial statements and have come across these two issues following a discussion between the audit engagement partner and a representative of the client’s management:

Legal Case:
In January 2022, a legal case was initiated against Pato Plc by Filmco Plc, a film production company. Filmco Plc claims that Pato Plc has infringed on its copyright by streaming a film in specific countries for which a license has not been acquired. Pato Plc insists that the film is covered by a general license which was acquired several years ago. Pato Plc’s Finance Director is not willing to recognize the legal claim within the financial statements as he is confident that the claim against the company will not be successful, and he does not want to discuss it further with the audit team, emphasizing that there is no relevant documentation available for evaluation at this time.
(7 marks)

Annual Incentive Scheme:
For several years, Pato Plc has operated an annual incentive scheme for staff, under the terms of which employees are eligible to receive an annual incentive payment linked to the achievement of selected targets. The scheme operates for all employees, with some employees’ targets linked to profitability, while others are aligned to non-financial measures including customer satisfaction, customer loyalty, and customer complaints, among others. Participants in the scheme are entitled to earn a maximum annual incentive payment of 5% of their salary. Approximately 6,590 employees, including the senior executive directors, are entitled to participate in the annual incentive scheme. Last year the average bonus payment was GH¢1,250 per participant.
(7 marks)

Required:
Evaluate the principal audit risk(s) in planning the audit of Pato Plc.

b) The Management of Pato Plc has decided not to provide the audit firm with the written representation for the legal case as they feel that it is unnecessary. The potential provision for the legal case is 6% of profit before tax.
Required:
As the Auditors of Pato Plc, discuss the steps you should take and the impact on the audit report in relation to the refusal to provide the written representation.
(6 marks)

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