- 20 Marks
AA – May 2024 – L2 – SA – Q3 – Audit evidence
This question tests knowledge on reasons for obtaining letters of representation from clients' management, steps to take if representations are contradicted, and drafting a letter of representation.
Question
You are the Audit Senior-in-charge of the audit of Edinburg Nigeria Limited. The management of the company made some representations to you, which include:
- Inventory worth ₦15 million in its only branch in Niger Republic, which you couldn’t visit because of the ongoing civil unrest in that country;
- A donation of ₦500,000 was made to a motherless babies home by the Chairman but it was not receipted; and
- The chairman received medical treatment amounting to ₦600,000 during his official visit to Germany to negotiate with equipment vendors, and he did not come back with any documentary evidence.
You have reported these matters to the partner of your firm, Olumisi Oregun & Co.
Required:
a. Explain two reasons for obtaining letters of representation from clients’ management. (4 Marks)
b. Explain three steps you will take if a representation by management is contradicted by other audit evidence. (6 Marks)
c. Draft a letter of representation, which the management of Edinburg Nigeria Limited will present to your firm. (10 Marks)
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