Which of the following is a key component of a written representation?

Which of the following is a key component of a written representation?

• A. It must include future forecasts
• B. It should be addressed to the shareholders
• C. It must be approved by those with specific knowledge
• D. It generally requires verbal confirmation

Answer: (C)

A key component of a written representation is that it must be approved by those with specific knowledge, typically the management of the entity being audited. This is significant as written representations serve as a formal assertion from management regarding various aspects of financial reporting, compliance with laws, and the completeness of information provided to auditors. Management is responsible for the accuracy and completeness of financial statements; thus, their approval lends credibility to the representations made. Furthermore, when those with specific knowledge confirm the accuracy of the information, it reduces the risk of misstatement and enhances the auditor's confidence in the reliability of the financial statements. In contrast, including future forecasts is not a standard requirement in written representations, as they typically focus on current conditions and past transactions rather than predictions. Addressing the written representation to shareholders may not be necessary, as the intended recipient is generally the auditor. Lastly, while verbal confirmation can complement the written representations, it does not replace the need for documentation and formal approval. Thus, the emphasis on approval by knowledgeable individuals highlights the importance of accuracy and accountability within financial reporting processes.

A key component of a written representation is that it must be approved by those with specific knowledge, typically the management of the entity being audited. This is significant as written representations serve as a formal assertion from management regarding various aspects of financial reporting, compliance with laws, and the completeness of information provided to auditors.

Management is responsible for the accuracy and completeness of financial statements; thus, their approval lends credibility to the representations made. Furthermore, when those with specific knowledge confirm the accuracy of the information, it reduces the risk of misstatement and enhances the auditor's confidence in the reliability of the financial statements.

In contrast, including future forecasts is not a standard requirement in written representations, as they typically focus on current conditions and past transactions rather than predictions. Addressing the written representation to shareholders may not be necessary, as the intended recipient is generally the auditor. Lastly, while verbal confirmation can complement the written representations, it does not replace the need for documentation and formal approval. Thus, the emphasis on approval by knowledgeable individuals highlights the importance of accuracy and accountability within financial reporting processes.