Standard threat to audit sign-offs

The proposed rule means companies have to provide written representations of
their controls.

Now a leading FTSE 100 finance director has said the move could lead to
auditors rejecting accounts if they are not certain of the representations.

‘If directors provide the representations that are needed, and the auditor
concludes the representation is not reliable, the auditor can disclaim opinion
on the financial statements,’ said Ken Lever of Tomkins.

‘There has to be careful consideration that this does not lead to a
requirement on companies to produce excessive amounts of information when these
things can be achieved in another way.

‘You have to be careful this doesn’t become a way into using general
representation letters as a basis for trying to demand companies to do more and
more things,’ he said. The comment from Lever, also chairman of the Hundred
Group’s financial reporting committee, comes amidst consultation of an exposure
draft of ISA 580, issued by the US-based International Federation of
Accountants.

Only five members of IFAC’s 18-member standards body ­ including Ernst &
Young partner Will Rainey ­ David Swanney of Scotland, and three others from
Australia, Canada, Italy ­ voted against the standard.

‘We’re getting into a situation where if management are not prepared to
represent internal controls, then the auditor may have no option but to disclaim
their opinion on it,’ said Rainey.