Concern is growing around an auditing standard – ISA 580 – asking that directors evidence their commitment to proper controls through so-called ‘management representation’ letters.

Who, one might ask, could disagree with companies having stronger controls? If the costs were worth it (and that is a very big if), surely that would be OK?

But many are sticking their heads above the parapet to criticise the proposed standard, for two reasons.

One is that the letters could lead to mountains of paperwork. If all those who speak to auditors have to get a legal sign-off, rather than just directors, there could be a lot of unnecessary box ticking.

And further to that, there is a feeling that auditors might choose to rely on those sign-offs rather than conducting a full and thorough audit.

The UK – represented by firms, companies and investors - has slated the standard, and are set to do so further when they submit their collective views to the APB by the end of April.

Representing the investment community Tim Bush, went so far as to say the IAASB, which devised the standard, has ‘a poor understanding of [UK] Company Law.’

Hundred Group chairman of the financial reporting committee Ken Lever is also backing the criticisms.

Lever said the issue of representation letters is something which had always been of concern to companies, as they should not be used as a basis to effectively get directors to represent things which auditors themselves ought to establish and audit anyway.

‘We have to be careful we don’t end up with a situation of the tail waging the dog whereby the representation letters are used just to help the auditors feel comfortable with the information given. It could ultimately lead auditors down a Sarbox route,’ he said.

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