VIETNAMESE STANDARDS ON AUDITING
STANDARD No. 580
MANAGEMENT REPRESENTATIONS
(Issued in pursuance of the Finance Minister’s Decision No. 219/2000/QD-BTC dated 29 December 2000)
GENERAL PROVISIONS
01. This standard aims to prescribe the basic principles and procedures and guide the ways of applying the basic principles and procedures to the gathering and use of the management representations (of the heads) of the audited units as auditing evidences, the procedures applicable to evaluate and archive the management representations (or the heads) of the units, the handling measures when the directors (or the heads) of the units refuse to supply appropriate representations in the process of auditing financial statementss.
02. The auditors shall have to gather management representations (or the heads) of the audited units.
03. This standard shall apply to the audit of financial statementss and also to the audit of other financial information and relevant services of the auditing companies.
The auditors and auditing companies shall have to abide by the provisions of this standard in the course of auditing the financial statementss.
The audited units (customers) and the parties using the auditing results must have necessary knowledge of this standard for coordination with the auditors and auditing companies in work as well as in handling of relations in auditing.
Terms used in this standard shall be understood as follows:
04. Directors (or the heads) are the highest representatives at law of enterprises or organizations such as directors, general directors, owners, heads of units. In a number of cases, the heads are chairmen of the Managing Councils or the Management Boards (hereinafter called collectively the directorates).
CONTENTS OF THE STANDARD
The audited unit directors’ acknowledge of the responsibility for the financial statementss
05. The auditors shall have to gather evidences on the acknowledgement by the directors of the audited units of their responsibility for making and presenting the financial statementss truthfully, reasonably and in conformity with the current (or accepted) accounting standards and regimes and having approved the financial statementss. The auditors shall gather the above-said evidences in the minutes of meetings of the Management Boards (or directorates) related to this matter, or by way of requesting the directors so supply the "representations ", the "director’s report" or the "financial statementss" already signed for approval by the directors.
Using directors representations as auditing evidences
06. In case of lack of appropriate auditing evidences, the auditors shall have to gather the written management representations of the audited units on matters which are deemed to greatly affect the financial statementss. In order to limit the misunderstanding between auditors and directors of the units, the written explanations must be re-certified in writing by the directors. Appendix No.1 gives examples on matters expressed in the written representations of directors or in the auditors’ written requests for certification by the directors.
07. Matters requested to be explained in writing by directors are restricted to specific or general matters which greatly affect the financial statementss. For matters which are deemed necessary, the auditors shall have to inform the directors clearly of their opinions on the importance of the matters which should be explained.
08. In the course of auditing, the directors (or heads) of the audited units shall send their written representations to the auditors and auditing companies voluntarily or at the request of the auditors. When the representations are related to matters which greatly affect the financial statementss, the auditors shall have to do the following:
- Gathering auditing evidences from information inside or outside the units for verification of the directors’ representations;
- Assessing the reasonability and consistency between the directors representations and other gathered auditing evidences;
- Determining the extent of understanding about the explained matters by the representation makers.
09. The directors’ representations cannot substitute the auditing evidences gathered by auditors. (Example: The director’s explanation about the cost price of a fixed asset cannot substitute the auditing evidence on the cost price of that asset such as invoice issued by the seller or the approved report on settlement of completed project). The auditors’ failure to adequately gather appropriate auditing evidences on a matter which greatly affects the financial statements while such evidences can be gathered will lead to the restriction on the auditing scope though that matter has already been explained by the director.
10. In a number of cases, the directors representations are the only gathered auditing evidence. (Example: Auditors must not gather other evidences to prove the director’s decision to make some long-term investment?).
11. The auditors shall have to inquire into the reasons when the directors’ representations contradict other auditing evidences and, when necessary, have to re-verify the reliability of the auditing evidences and the director’s representations.
Archiving into the auditing files the directors representations
12. The auditors shall have to keep in the auditing files the directors representations in form of summarizing the verbal exchanges or written explanations for use as auditing evidences.
13. The written representations evaluated as auditing evidences are more valuable than the verbal explanations. The written representations are demonstrated in the following forms:
- The director’s written representation;
- The auditor’s letter listing all his/her understanding of the directors explanations, which are certified by the director as correct;
- The minutes of meetings of the Management Boards or financial statementss already signed for approval by the directors.
Basic details of a written representation
14. When requesting the units director to make the representation, the auditor shall have request that such documents be addressed directly to him/her with the contents: the information to be explained, day, month, full name and signature of the representation maker of his/her certification in the representation.
15. Usually, the directors written representation is inscribed with the same day and month inscribed on the auditing report. Some cases require the making of written explanations right in the course of auditing or after the date inscribed on the financial statements but before the date inscribed on the auditing report. In specific cases, the explanation is made and announced after the issuance of the auditing report. (Example: the date of issuance of shares).
16. The director’s representation is usually signed by the director (or the head) of the unit. In a number of cases, auditors are allowed to receive the explanations from other members authorized by the directors. (Example: Auditors wish to gather the written certification of the adequate supply of all the minutes of the shareholders’ congresses, the minutes of meetings of the directorates or the Management Boards from people who are in charge of keeping these minutes).
Handling measures to be applied if directors refuse to supply explanations
17. If directors refuse to supply explanations requested by auditors, thus restricting the auditing scope, the auditors must give their "opinion of partial acceptance" or "opinion of refusal". In this case, the auditors shall have to re-evaluate the reliability of all other explanations of the directors in the course of auditing and consider the extent of their effect on the financial statements./.
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