Magazine article The CPA Journal

SAS No. 85-Management Representations

Magazine article The CPA Journal

SAS No. 85-Management Representations

Article excerpt

AS No. 85, Management Representations, supersedes SAS No. 19, Client Representations, and Auditing Interpretation No. 2, Management Representations When Current Management Was Not Present During the Period Under Audit. The new SAS now incorporates the guidance previous ly included in the interpretation. It also amends SAS No. 58, Reports on Audited Financial Statements, by requiring a predecessor auditor to obtain a letter of representation from management in addition to the representation letter from a successor auditor before reissuing a report previously issued on financial statements of a prior period.

The new SAS has been issued to respond to changes in both auditing practice and the auditing environment since SAS No. 19 was issued. The specific rep resentations to be received from management now include information concerning fraud and significant risks and uncertainties. Others, such as the one on obsolete inventories, have been dropped.

Other changes include the following:

A clarification that the auditor is to receive representations for all financial statements and periods covered by the auditor's report;

Management must now state that it is their belief that the financial statements are fairly presented in conformity with generally accepted accounting principles;

The auditor is now ordinarily required to obtain a representation letter tailored to cover representations relating to the financial statements unique to the entity's business or industry;

If other evidence contradicts a representation, the auditor is required to investigate the circumstances and consider the reliability of the representation made;

Guidance is now included regarding materiality levels that may be stated explicitly in the representation letter, in either qualitative or quantitative terms. …

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