Chapter-7 Completion and Review

SA 560 Subsequent Events

Topic-1 Objective of Auditor
(a) Obtain sufficient appropriate audit evidence about whether events occurring between the date
of the financial statements and the date of the auditor’s report that require adjustment of, or
disclosure in, the financial statements are appropriately reflected in those financial statements
(HINT-CASE I)
(b) Respond appropriately to facts that become known to the auditor after the date of the auditor’s
report, that, had they been known to the auditor at that date, may have caused the auditor to
amend the auditor’s report. (HINT-CASE II)

Topic-2 Types of Events

Adjusting Events (Adjustment & Disclosure)
Those that provide evidence of conditions that existed at the date of the financial statements
Examples
 Insolvency of a major debtor after the financial statement date, confirming recoverability
issues as of the statement date.
 Settlement of a legal claim at a reduced amount, necessitating adjustment to provisions already
recorded.

Non Adjusting Events (Disclosure)

Those that provide evidence of conditions that arose after the date of the financial statements.
Examples
 Issue of new share capital.
 Planned merger of the company.
 Significant inventory loss due to fire after the financial statement date.

Topic-3 Date the financial statements are issued

• The "date the financial statements are issued" is when the audited financial statements and
auditor's report are made available to third parties.
• This date depends on the entity's regulatory environment.
• It may coincide with the date the financial statements are filed with a regulatory authority.
• Audited financial statements cannot be issued before the auditor's report is completed and
shared with the entity.
• The issue date must always be on or after the date of the auditor's report.

Topic-4 Auditor‛s responsibilities regarding S.E. b/w the date of the f.s and the date of the
auditor‛s report (CASE-I)
The auditor shall perform procedures to obtain sufficient evidence ensuring all events between the
financial statement date and the auditor‛s report date, requiring adjustment or disclosure, are
identified.
The auditor shall take into account the auditor’s risk assessment in determining the nature and
extent of such audit procedures, which shall include the following: -
1. Obtaining an understanding of any procedures management has established to ensure that
subsequent events are identified.
2. Inquiring of management and, where appropriate, those charged with governance as to whether
any subsequent events have occurred which might affect the financial statements.
3. Reading minutes, if any, of the meetings, of the entity’s owners, management and those
charged with governance, that have been held after the date of the financial statements and
inquiring about matters discussed at any such meetings for which minutes are not yet available.
4. Reading the entity’s latest subsequent interim financial statements, if any.
Information may also be obtained by auditor from accounting records pertaining to period after date
of financial statements, reading entity’s latest available budgets etc.
If identifies events that require adjustment of, or disclosure in, the financial statements, the
auditor shall determine whether each such event is appropriately reflected in those financial
statements.
The auditor shall request management and, where appropriate, those charged with governance, to
provide a written representation in accordance with SA 580.

Topic-5 Facts which become known to the auditor after date of auditor‛s report (CASE -II)
A. But before the date the financial statements are issued
 No obligation to perform any audit procedures .
 However, when, after the date of the auditor’s report but before the date the financial
statements are issued, a fact becomes known to the auditor that, had it been known to the
auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s
report, the auditor shall:
 Discuss the matter with management and, where appropriate, those charged with governance.
 Determine whether the financial statements need amendment and, if so,
 Inquire how management intends to address the matter in the f.s.
 Mgmt agree to Amend
Auditor shall
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Extend audit procedures to date of new audit report and Provide a new auditor’s report on the
amended financial statements.
NOTE- The new auditor’s report shall not be dated earlier than the date of approval of the amended
financial statements (MCQ)

Special case-L/R or FRF

If laws, regulations, or the financial reporting framework allow management to limit amendments to
the financial statements only to the effects of specific subsequent events, and those approving
the financial statements can also restrict their approval to those amendments, the auditor can
limit their procedures on subsequent events to those amendments.
In such cases, the auditor must either:
(a) Modify the auditor’s report by adding an additional date specifically for the amendments,
indicating that subsequent event procedures were limited to those amendments mentioned in the
relevant note to the financial statements (Dual Date Reporting)
or
(b) Issue a new or amended auditor’s report with an Emphasis of Matter or Other Matter paragraph,
explaining that the auditor’s subsequent event procedures were restricted only to the amendments
described in the relevant note to the financial statements.

 Mgmt refuses to Amend

• If the auditor‛s report is not yet provided: The auditor must modify the opinion as per SA 705
and then issue the report.
• If the auditor‛s report is already provided: Auditor must inform management (and those charged
with governance, if applicable) not to distribute f.s. until the necessary amendments are made.
• If the financial statements are issued without amendments, the auditor must take steps to
prevent reliance on the report.
• Note: If laws, regulations, or the financial reporting framework do not require management to
issue amended financial statements, auditor is not obligated to provide a new or amended report.

B. But after the financial statements have been issued

No obligation to perform any audit procedures .
However, when, after the financial statements have been issued, a fact becomes known to the
auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused
the auditor to amend the auditor’s report, the auditor shall: -
(a) Discuss the matter with management and, where appropriate, those charged with governance.
(b) Determine whether the financial statements need amendment and, if so,
(c) Inquire how management intends to address the matter in the f.s.

If the management amends the financial statements, the auditor shall: -

(a) Perform necessary audit procedures related to the amendments.
(b) Review management's actions to inform recipients of the previously issued financial statements
and auditor’s report about the amendments.
(c) Unless restricted by law, regulation, or the financial reporting framework, the auditor must:
 Extend the audit procedures to the date of the new auditor’s report, ensuring the new
report date is no earlier than the approval date of the amended financial statements.
 Issue a new auditor’s report on the amended financial statements.
(d) If law, regulation, or the financial reporting framework allows management to restrict
amendments to the effects of specific events, the auditor must either amend the existing report
or issue a new report.

In the new or amended report, the auditor must include an Emphasis of Matter or Other Matter
paragraph referring to the financial statement note that explains the reason for the amendment and
references the earlier auditor’s report.

When Management Fails to Take Necessary Steps

If management does not ensure that recipients of the previously issued financial statements are
informed or fails to amend the financial statements when required,
the auditor must: Notify management, and if applicable, those charged with governance (unless
they are directly managing the entity), that the auditor will act to prevent future reliance on the
auditor’s report.
If management or those charged with governance still fail to take the necessary steps, the auditor
must take appropriate measures to prevent reliance on the report.
SA 570 Going Concern
Topic-1 Meaning of going concern and its significance
• Going Concern is a fundamental accounting assumption where an enterprise is expected to
continue its operations for the foreseeable future, with no intention or necessity of liquidation
or significant downsizing.
• Financial statements are prepared on this basis, assuming the entity will realize its assets and
settle liabilities in the normal course of business, unless management plans to liquidate or cease
operations or has no viable alternative.
• This assumption significantly impacts the preparation of financial statements. If the entity is
not a going concern, statements are prepared on a liquidation basis, with assets and liabilities
adjusted to reflect their realizable values.

Topic-2 Responsibility for assessment of the entity‛s ability to continue as a going concern
• Mgmt responsibility.
• It involves making a judgment, at a particular point in time, about inherently uncertain future
outcomes of events or conditions.
• Following factors are relevant to that judgment: -
1. Degree of uncertainty associated with the outcome of an event or condition
2. Size and complexity of the entity, the nature and condition of its business and the degree to
which it is affected by external factors affect the judgment regarding the outcome of
events or conditions.
3. Any judgment about the future is based on information available at the time at which the
judgment is made. Subsequent events may result in outcomes that are inconsistent with
judgments that were reasonable at the time they were made.

Topic-3 Objective of Auditor

(a) To obtain sufficient appropriate audit evidence regarding and conclude on the appropriateness
of management’s use of the going concern basis of accounting in the preparation of the financial
statements.
(b) To conclude, based on the audit evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the entity’s ability to continue as a
going concern
(c) To report in accordance with this SA
Note-As per SA 200, the potential effects of inherent limitations on the auditor’s ability to detect
material misstatements are greater for future events or conditions that may cause an entity to
cease to continue as a going concern. The auditor cannot predict such future events or conditions.
Accordingly, the absence of any reference to a material uncertainty about the entity‛s ability to
continue as a going concern in an auditor‛s report cannot be viewed as a guarantee as to the entity‛s
ability to continue as a going concern.

Topic-4 Risk Assessment Procedures

When performing risk assessment procedures as required by SA 315, the auditor shall consider
whether events or conditions exist that may cast significant doubt on the entity’s ability to continue
as a going concern. In so doing, the auditor shall determine whether management has already
performed a preliminary assessment of the entity’s ability to continue as a going concern that are
inconsistent with judgments that were reasonable at the time they were made.
A. If such an assessment has been performed,
The auditor shall discuss the assessment with management and determine whether management has
identified events or conditions that, individually or collectively, may cast significant doubt on the
entity‛s ability to continue as a going concern and, if so, management‛s plans to address them

B. If such an assessment has not yet been performed,

The auditor shall discuss with management the basis for the intended use of the going concern basis
of accounting, and inquire of management whether events or conditions exist that, individually or
collectively, may cast significant doubt on the entity’s ability to continue as a going concern.

Prof Skepticim- The auditor shall remain alert throughout the audit for audit evidence of events or
conditions that may cast significant doubt on the entity‛s ability to continue as a going concern.

Topic-5 Examples of events or conditions that may cast significant doubt on the entity‛s ability
to continue as a going concern
(a) Financial events or conditions
• Net liability or net current liability position
• Fixed-term borrowings approaching maturity without realistic prospects of renewal or
repayment; or excessive reliance on short-term borrowings to finance long-term assets
• Indications of withdrawal of financial support by creditors
• Negative operating cash flows indicated by historical or prospective financial statements
• Adverse key financial ratios
• Substantial operating losses or significant deterioration in value of assets used to generate
cash flows
• Arrears or discontinuance of dividends
• Inability to pay creditors on due dates
• Inability to comply with the terms of loan agreements
• Change from credit to cash-on-delivery transactions with suppliers
• Inability to obtain financing for essential new product development

(b) Operating
• Management intentions to liquidate the entity or to cease operations
• Loss of key management without replacement
• Loss of a major market, key customer(s), franchise, license, or principal supplier(s)
• Labour difficulties
• Shortages of important supplies
• Emergence of big competitor

(c) Other events and conditions

• Non-compliance with capital, statutory, or regulatory requirements (e.g., solvency or liquidity
norms for financial institutions).
• Pending legal or regulatory actions that could lead to unsustainable claims if ruled against the
entity.
• Adverse impacts from changes in laws, regulations, or government policies.
• Occurrence of uninsured or underinsured catastrophic events.

Topic-6 Additional audit procedures when events or conditions are identified

If events raise doubt about the entity's going concern status, the auditor must gather sufficient
evidence to assess if material uncertainty exists, considering mitigating factors through further
audit procedures.
These procedures shall include: -
(a) If management hasn't assessed going concern, requesting them to do so.
(b) Evaluating management’s future action plans for feasibility and effectiveness.
(c) If a cash flow forecast is key to assessing future outcomes, the auditor shall:
 Evaluate the reliability of the data used, and
 Assess the adequacy of support for its assumptions.
(d) Considering new information available since management’s assessment.
(e) Obtaining written representations from management and governance on their future plans and
feasibility.

Examples of audit procedures when events or conditions have been identified that may cast
significant doubt on the entity‛s ability to continue as going concern (READ)
 Review and discuss cash flow, profit, and forecasts with management.
 Analyze the latest interim financial statements.
 Examine debenture and loan terms for breaches.
 Review meeting minutes of shareholders and governance bodies for financial issues.
 Consult legal counsel on litigation, claims, and management’s assessments.
 Verify financial support agreements and the ability of related/third parties to provide funds.
 Assess plans to address unfilled customer orders.
 Perform procedures on subsequent events impacting going concern.
 Confirm borrowing facilities' existence, terms, and adequacy.
 Review regulatory action reports.

Topic-8 Evaluating management‛s assessment

• If the entity has a history of profits and access to financial resources, management may assess
going concern without detailed [Link] auditor may rely on other audit procedures to
conclude on the appropriateness of management's going concern basis.
• In complex cases, the auditor must evaluate management's process, assumptions, and future
plans for feasibility.
• The auditor's assessment period must match or exceed the period set by the financial
reporting framework or regulations.
• If management's assessment is under 12 months from the financial statement date, the auditor
must request an extension to at least 12 months.

Topic-9 Adequacy of disclosures when events or conditions have been identified &
a. Material uncertainty exists
• Adequately disclose the principal events or conditions that may cast significant doubt on the
entity’s ability to continue as a going concern and management’s plans to deal with these events
or conditions and
• Disclose clearly that there is a material uncertainty related to events or conditions that may
cast significant doubt on the entity’s ability to continue as a going concern and, therefore, that
it may be unable to realize its assets and discharge its liabilities in the normal course of
business.

b. No Material uncertainty exists

 If events suggest doubt about going concern but audit evidence shows no material uncertainty,
the auditor must assess if the financial statements adequately disclose these events per the
reporting framework.

Topic-10 Implications for the auditor‛s report

(I) If use of Going concern basis of accounting is inappropriate-
The auditor shall express an adverse opinion if doing Going Concern Accounting.

(II) If use of going concern basis of accounting is appropriate but a material uncertainty exists
(A) Adequate Disclosure of a Material Uncertainty is made in the F.S.([Link])
Auditor issues an unmodified opinion with a separate section titled "Material Uncertainty Related
to Going Concern" to:
(a) Draw attention to the note in the financial statements that discloses such matters.
(b) State that the events indicate significant doubt about the entity's ability to continue, but
the opinion remains unmodified.

(B) Adequate Disclosure of a Material Uncertainty is Not Made in the F.S.

If material uncertainty is not properly disclosed, the auditor shall:
(a) Issue a qualified or adverse opinion as per SA 705.
(b) State in the Basis for Opinion section that material uncertainty exists about the entity‛s going
concern status, and the financial statements lack adequate disclosure.

(III) Management unwilling to make or extend its assessment

Qualified or Disclaimer Opinion
 SA 260- Communication with Those Charged with Governance
Topic-1 Those charged with Governance (TCWG)
• Definition and Role:
TCWG refers to individuals or groups responsible for overseeing the entity's strategic
direction and accountability, including the financial reporting process.
Examples include a corporate trustee, board of directors, or supervisory boards. In smaller
entities, this could be an owner-manager or sole trustee.
• Governance Structures:
Vary based on cultural, legal, and ownership influences. Some entities have separate
supervisory and executive boards, while others may combine these functions. In certain cases,
TCWG may overlap with management (e.g., owner-managers).
• Collective vs. Individual Responsibility:
Larger entities usually have a governing body like a board of directors or trustees. In smaller
entities, governance may rest with one individual, such as the sole proprietor or trustee.
• Communication Challenges:
Legal frameworks or engagement terms may not always clearly define TCWG, especially in
family-owned businesses or not-for-profit organizations. The auditor must identify and agree
on the appropriate persons to communicate with, guided by their understanding of the entity's
governance structure (as per SA 315).
• Context-Specific Communication:
The auditor's communication approach may differ based on the governance structure and the
nature of matters to be communicated. Understanding the processes and roles within governance
helps ensure proper engagement and compliance.

Topic-2 Objective of Auditor as per SA 260

a) To communicate clearly with TCWG
 the responsibilities of the auditor in relation to the financial statement audit, and
 an overview of the planned scope and timing of the audit;
b) To obtain from those charged with governance information relevant to the audit;
c) To provide TCWG with timely observations arising from the audit that are significant and
relevant to their responsibility to oversee the financial reporting process
d) To promote effective two-way communication between the auditor and TCWG.

NOTE- An effective two-way communication is important in assisting: -

a) The auditor and TCWG
 in understanding matters related to the audit in context,
 in developing a constructive working relationship. This relationship is developed while
maintaining the auditor’s independence and objectivity.
b) The auditor in obtaining from TCWG information relevant to the audit.
Ex- Those charged with governance may assist the auditor in understanding the entity,
identifying evidence sources, and providing information on specific transactions or events.
c) TCWG in fulfilling their responsibility to oversee the financial reporting process, thereby
reducing the risks of material misstatement of the financial statements

Adequacy of Communication Process

The auditor shall evaluate whether the two-way communication between the auditor and those
charged with governance has been adequate for the purpose of the audit.
If not, the auditor shall evaluate the effect, on the auditor’s assessment of the romm and
ability to obtain SAAE, and shall take appropriate action.
Topic-3 Matters to be communicated by Auditor
a. The auditor’s responsibilities in relation to the F.S. audit
• The auditor is responsible for forming and expressing an opinion on the financial statements
that have been prepared by management with the oversight of those charged with governance
• The audit of the f.s. does not relieve management or TCWG of their responsibilities.

b. Planned scope and timing of the audit

The auditor shall communicate with TCWG - overview of the planned scope and timing of the audit,
which includes communicating about the significant risks identified by the auditor.

c. Significant findings from the audit

1. The auditor’s views about significant qualitative aspects of the entity’s accounting practices,
including accounting policies, accounting estimates and financial statement disclosures. The
auditor shall explain to those charged with governance why a significant but acceptable
accounting practice is deemed unsuitable for the entity's circumstances.
2. Significant difficulties, if any, encountered during the audit.
3. Unless all of those charged with governance are involved in managing the entity: -
 Significant matters arising during the audit that were discussed, or subject to
correspondence, with management
 Written representations the auditor is requesting
4. Circumstances that affect the form and content of the auditor’s report, if any
5. Any other significant matters arising during the audit that, in the auditor‛s professional
judgment, are relevant to the oversight of the financial reporting process.

Topic-4 Communication of Auditor‛s Independence in case of listed entities

(a) A statement that
- engagement team and others in the firm as appropriate,
- the firm and, when applicable, network firms have complied with relevant ethical
requirements regarding independence
(b) (i) All relationships and other matters between the firm, network firms, and the entity that, in
the auditor’s professional judgment, may reasonably be thought to bear on independence.
This shall include total fees charged during the period covered by the financial statements for
audit and non-audit services provided
- by the firm and network firms
- to the entity and components controlled by the entity.
These fees shall be allocated to categories that are appropriate to assist TCWG in assessing the
effect of services on the independence of the auditor
(ii) The related safeguards that have been applied to eliminate identified threats to independence
or reduce them to an acceptable level.

Topic-5 Documentation
-Where matters required by SA 260 to be communicated are communicated orally, the auditor
shall include them in the audit documentation, and when and to whom they were communicated.
-Where matters have been communicated in writing, the auditor shall retain a copy of the
communication as part of the audit documentation.
 SA 265- Communicating Deficiencies in Internal Control to TCWG and Management
Topic-1 Definition
Deficiency in internal control
This exists when: -
(i) A control is designed, implemented or operated in such a way that it is unable to prevent, or
detect and correct, misstatements in the financial statements on a timely basis
or
(ii) A control necessary to prevent, or detect and correct, misstatements in the financial statements
on a timely basis is missing.

Significant deficiency in internal control –

A deficiency or combination of deficiencies in internal control that, in the auditor‛s professional
judgment, is of sufficient importance to merit the attention of TCWG.
The significance of a deficiency or a combination of deficiencies in internal control depends not only
on whether a misstatement has actually occurred, but also on the likelihood that a misstatement
could occur and the potential magnitude of the misstatement.

Topic-2 Communication of significant deficiencies in internal control to TCWG

The auditor shall communicate in writing significant deficiencies in internal control identified
during the audit to TCWG on a timely basis.
The auditor shall also communicate to management at an appropriate level of responsibility on a
timely basis: -
a) In writing, significant deficiencies in internal control that the auditor has communicated or
intends to communicate to TCWG, unless it would be inappropriate to communicate directly to
management in the circumstances and
b) Other deficiencies in internal control identified during the audit that have not been
communicated to management by other parties and that, in the auditor’s professional judgment,
are of sufficient importance to merit management’s attention.

The auditor shall include in written communication of significant deficiencies in internal control
 A description of the deficiencies and
 an explanation of their potential effects
 Sufficient information to enable TCWG & Mgmt to understand context of the communication.
In particular, the auditor shall explain that: -
 The purpose of the audit was for the auditor to express an opinion on the financial statements.
 The audit included consideration of internal control relevant to the preparation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of internal control.
 The matters being reported are limited to those deficiencies that the auditor has identified
during the audit and that the auditor has concluded are of sufficient importance to merit being
reported to those charged with governance.

Topic-3 Eg of Matters that the auditor may consider in determining whether a deficiency or
combination of deficiencies in internal control constitutes a significant deficiency
 The likelihood of the deficiencies leading to material misstatements in the financial statements
in the future.
 The susceptibility to loss or fraud of the related asset or liability.
 The subjectivity and complexity of determining estimated amounts, such as fair value
accounting estimates
 The financial statement amounts exposed to the deficiencies.
 The volume of activity that has occurred or could occur in the account balance or class of
transactions exposed to the deficiency or deficiencies.
 The importance of the controls to the financial reporting process, for example:
 General monitoring controls (such as oversight of management).
 Controls over the prevention and detection of fraud.
 Controls over the selection and application of significant accounting policies.
 Controls over significant transactions with related parties.
 Controls over significant transactions outside the entity’s normal course of business.
 Controls over the period-end financial reporting process (such as controls over non-
recurring journal entries).
 The cause and frequency of the exceptions detected as a result of the deficiencies in the
controls.
 Interaction of the deficiency with other deficiencies in internal control.

Topic-4 Examples of indicators of significant deficiencies in internal control

 Evidence of ineffective aspects of the control environment, such as: -
 Indications that significant transactions in which management is financially interested are
not being appropriately scrutinised by those charged with governance.
 Identification of management fraud, whether or not material, that was not prevented by
the entity’s internal control.
 Management’s failure to implement appropriate remedial action on significant deficiencies
previously communicated.
 Absence of a risk assessment process within the entity where such a process would ordinarily
be expected to have been established.
 Evidence of an ineffective entity risk assessment process, such as management’s failure to
identify a risk of material misstatement that the auditor would expect the entity’s risk
assessment process to have identified.
 Evidence of an ineffective response to identified significant risks (e.g., absence of controls
over such a risk).
 Misstatements detected by the auditor’s procedures that were not prevented, or detected and
corrected, by the entity’s internal control (Ineffective IC)
 Disclosure of a material misstatement due to error or fraud as prior period items in the
current year’s Statement of Profit and Loss.
 Evidence of management’s inability to oversee the preparation of the f.s.
 SA 450 Evaluation of Misstatements Identified during the Audit
Topic-1 Objective
The objective of the auditor is to evaluate
(a) The effect of identified misstatements on the audit
(b) The effect of uncorrected misstatements, if any, on the financial statements.
Note- The auditor shall accumulate misstatements identified during the audit, other than those that
are clearly trivial.

Topic-2 Consideration of identified misstatements as the audit progresses

The auditor shall determine whether the overall audit strategy & audit plan need to be revised if: -
(a) The nature of identified misstatements and the circumstances of their occurrence indicate
that other misstatements may exist that, when aggregated with misstatements accumulated
during the audit, could be material or
(b) The aggregate of misstatements accumulated during the audit approaches materiality
determined in accordance with SA 320.
The auditor may ask management to examine and rectify misstatements in transactions, account
balances, or disclosures, based on identified or projected errors.
After corrections, the auditor shall perform further procedures to ensure no misstatements remain.

Topic-3 Communication and correction of misstatements

• Timely Communication:
The auditor must communicate all accumulated misstatements to the appropriate level of
management promptly unless restricted by law or regulation.
• Request for Corrections:
Request management to correct all identified misstatements.
Correcting misstatements ensures accurate accounting records and reduces the risk of cumulative
errors impacting future financial statements.
• Management's Refusal to Correct:
Understand management’s reasons.
Factor these reasons into their assessment of whether the financial statements as a whole are free
from material misstatement.

Topic-4 Evaluating the effect of uncorrected misstatements

Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality
determined in accordance with SA 320 to confirm whether it remains appropriate in the context
of the entity’s actual financial results.
Auditor shall determine whether uncorrected misstatements are material, individually or in
aggregate. In making this determination, the auditor shall consider: -
(a) The size and nature of the misstatements, both in relation to particular classes of
transactions, account balances or disclosures and the financial statements as a whole, and the
particular circumstances of their occurrence
(b) The effect of uncorrected misstatements related to prior periods on the relevant classes of
transactions, account balances or disclosures, and the financial statements as a whole.

Topic-5 Communication with TCWG

• Mandatory Communication:
The auditor must communicate with TCWG about uncorrected misstatements and their potential
impact, individually or in aggregate, on the audit opinion, unless restricted by law or regulation.
• Identification of Material Misstatements:
Material uncorrected misstatements must be individually identified in the communication.
• Request for Corrections
The auditor is required to request that uncorrected misstatements be rectified.
• Impact of Prior Period Misstatements:
The auditor shall also communicate with those charged with governance the effect of uncorrected
misstatements related to prior periods on the relevant classes of transactions, account balances or
disclosures, and the financial statements as a whole.

Topic-6 W/R from mgmt regarding effects of uncorrected statements

• W.R. whether they believe the effects of uncorrected misstatements are immaterial,
individually and in aggregate, to the financial statements as a whole.
• A summary of such items shall be included in or attached to the written representation.

Topic-7 Documentation
Documentation
a) Amt below which misstatements would be regarded as clearly trivial.
b) All misstatements accumulated during the audit and whether they have been corrected.
c) The auditor’s conclusion as to whether uncorrected misstatements are material, individually or
in aggregate, and the basis for that conclusion.
 SA 580 Written Representation
Topic-1 Overview of W/R
• Meaning
A written statement by management to the auditor confirming certain matters or supporting
other audit evidence.
It excludes financial statements, assertions, or supporting records.
• Written Representations as Audit Evidence
While written representations provide necessary audit evidence, they alone are insufficient.
Reliable written representations do not reduce the need for other audit evidence regarding
management’s responsibilities or specific assertions.
• Importance of W/R
If mgmt refuses or modifies requested representations, it may signal significant issues.
W/R encourage rigorous consideration of key matters, enhancing their reliability.

Topic-2 Objective as per SA 580

A. Obtain written representations from management and governance confirming their
responsibility for preparing financial statements and providing complete information.
B. Support other audit evidence relevant to financial statements or assertions, as deemed
necessary or required by standards.
C. Respond appropriately if written representations are provided or refused by management or
governance.

Topic-3 W/R about management’s responsibilities

a. Preparation of the financial statements
The auditor requests management to provide written confirmation of its responsibility for
preparing financial statements in compliance with the financial reporting framework, including
fair presentation, as outlined in the engagement letter.
Management may consult specialists involved in financial statement preparation, such as:
• Actuaries for actuarial accounting measurements.
• Staff engineers for environmental liability measurements.
• Internal counsel for legal claim provisions.
Written representations may include qualifying phrases like "to the best of knowledge”

b. Information provided and completeness of transactions

The auditor shall request management to provide a written representation that: -
• It has provided the auditor with all relevant information and access as agreed in the terms
of the audit engagement and
• All transactions have been recorded and are reflected in the financial statements.

NOTE- Why W/R about mgmt responsibilities are necessary

• Audit evidence alone is insufficient to confirm that management has fulfilled its
responsibilities for preparing financial statements and providing complete information. Written
confirmation ensures this understanding is explicit.
• The auditor cannot solely rely on other evidence to judge if management has acted based on
agreed responsibilities.
• Management may be asked to reconfirm its acknowledgment of responsibilities through written
representations, especially when:
  Those who signed the terms of the audit engagement on behalf of the entity no longer have
the relevant responsibilities
 The terms of the audit engagement were prepared in a previous year
 There is any indication that mgmt misunderstands those responsibilities.
 Changes in circumstances make it appropriate to do so.

Topic-4 Date of and Period(s) covered by W/R

 The date of the written representations shall be as near as practicable to, but not after, the
date of the auditor’s report on the financial statements.
Explanation- Because written representations are necessary audit evidence, the auditor’s
opinion cannot be expressed, and the auditor’s report cannot be dated, before the date of the
written representations. Furthermore, because the auditor is concerned with events occurring
up to the date of the auditor’s report that may require adjustment to or disclosure in the
financial statements, the written representations are dated as near as practicable to, but not
after, the date of the auditor’s report on the financial statements.
 W/R shall be for all financial statements and period(s) referred to in the auditor’s [Link] is
req because mgmt needs to reaffirm that the written representations it previously made with
respect to the prior periods remain appropriate.
CASE STUDY QUESTION
Situations may arise where current management were not present during all periods referred to
in the auditor‛s report. Such persons may assert that they are not in a position to provide some
or all of the written representations because they were not in place during the period. This fact,
however, does not diminish such persons‛ responsibilities for the financial statements as a whole.
Accordingly, the requirement for the auditor to request from them written representations that
cover the whole of the relevant period(s) still applies.

Topic-5 Other W/R

• In addition to the written representation about management’s responsibilities regarding
preparation of financial statements, the auditor may consider it necessary to request other
written representations about the financial statements.
• Such written representations may supplement, but do not form part of, the written
representation relating to management’s responsibilities regarding preparation of financial
statements.
• They may include representations about the following:
o Whether the selection and application of accounting policies are appropriate;
o Whether matters such as the following, where relevant under the applicable financial
reporting framework, have been recognized, measured, presented or disclosed in
accordance with that framework
 Plans or intentions that may affect the carrying value or classification of assets and
liabilities;
 Liabilities, both actual and contingent
 Title to, or control over, assets, the liens or encumbrances on assets, and assets
pledged as collateral
 Aspects of laws, regulations and contractual agreements that may affect the financial
statements, including non-compliance.

When obtaining evidence about, or evaluating, judgments and intentions, the auditor may consider
one or more of the following
o The entity’s past history in carrying out its stated intentions.
o The entity’s reasons for choosing a particular course of action.
o The entity’s ability to pursue a specific course of action.
o The existence or lack of any other information that might have been obtained during the
course of the audit that may be inconsistent with management’s judgment or intent.

In addition, the auditor may consider it necessary to request management to provide written
representations about specific assertions in the financial statements, in particular, to support an
understanding that the auditor has obtained from other audit evidence of management’s judgment
or intent in relation to, or the completeness of, a specific assertion.
Example- If management's intent affects the valuation of investments, a written representation
may be necessary to obtain sufficient appropriate audit evidence. However, such representations
alone are not sufficient and must be corroborated with other audit evidence.

Topic-6 Doubt as to the reliability of Written representations

 If the auditor has concerns about the competence, integrity, ethical values or diligence of
management, or about its commitment to or enforcement of these, the auditor shall determine
the effect that such concerns may have on the reliability of representations and audit evidence
in general.
 If W/R inconsistent with other audit evidence, the auditor shall perform audit procedures to
attempt to resolve the matter.
 If the matter remains unresolved, the auditor shall reconsider the assessment of the
competence, integrity, ethical values or diligence of management, or of its commitment to or
enforcement of these, and shall determine the effect that this may have on the reliability of
representations and audit evidence in general.

Topic-7 Requested W/R not provided

If management does not provide one or more of the requested written representations, the
auditor shall:
a. Discuss the matter with mgmt
b. Re-evaluate the integrity of management and evaluate the effect that this may have on the
reliability of representations and audit evidence in general
c. Take appropriate actions, including determining the possible effect on the opinion in the auditor’s
report in accordance with SA 705 having regard to the requirement of disclaimer of opinion.

NOTE on TOPIC 6 & 7

The auditor shall disclaim an opinion on the financial statements in accordance with SA 705 if:
(a) The auditor concludes that there is sufficient doubt about the integrity of management such
that the written representations about management fulfilling its responsibilities regarding
preparation of financial statements and about information provided and completeness of
transactions are not reliable; or
(b) Management does not provide the written representations relating to fulfilling its
responsibilities regarding preparation of financial statements and about information provided
and completeness of transactions.