You have been the auditor of Crossborder Trading Company Ltd for a number of years. The company's head office is in Nairobi, Kenya and has considerable overseas operations. At each accounting year end, there are large debts due from overseas agents of the company (Sh: 270 million out of total debts of Sh. 680 million as at 31 December 2000). In the past, these debts have always been settled after year end but you have insisted that the debts be the subject of a specific representation made by the company's director.
Required:

a) Outline the purpose of a letter of representation from management to the auditor. (5 marks)

b) Draft a paragraph for a letter of representation appropriate to the circumstances described above.
(3 marks)

c) Outline the audit work which should be performed when seeking evidence to substantiate the management's representations as drafted and indicated the value of the directors' representations in these circumstances. You should present your answer under
the following headings:
Existence and title.
Valuation
Disclosure.

d) State what action you would take if the directors refused to provide you with a letter of
representation

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a The purpose of a letter of representation from management to the auditor is to provide ... View the full answer