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 if 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. (3 marks)
 Valuation. (2 marks)
 Disclosure. (2 marks)
d) State what action you would take if the directors refused to provide you with a
letter of representation. (5
marks)