- 12 Marks
AAA – L3 – Q61 – Audit Evidence
Discuss reliability of directors' written representations and actions if directors refuse to sign, focusing on revenue and expenditure.
Question
You are the external auditor of Jonas Healthcare Services Co.
A written representation letter has been prepared in which the directors have been asked to confirm that all revenue has been included in the financial statements and that when there is weak evidence of expenditure, the expenditure has been for the benefit of the company and not for the personal benefit of any employee or director.
Required
(a) Discuss the reliability of audit evidence provided by directors in the written representation letter and whether you should rely wholly on the representations of the directors or whether you should obtain other evidence.
A written representation letter has been prepared in which the directors have been asked to confirm that all revenue has been included in the financial statements and that when there is weak evidence of expenditure, the expenditure has been for the benefit of the company and not for the personal benefit of any employee or director.
Required
(a) Discuss the reliability of audit evidence provided by directors in the written representation letter and whether you should rely wholly on the representations of the directors or whether you should obtain other evidence.
(b) Describe the action you would take and the conclusions you would reach if the directors refused to sign a written representation letter. Your answer should specifically consider the statements in the letter concerning completeness of revenue and validity of expenditure.
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