The following auditing interpretation is not the current version and does not reflect any amendments effective on or after December 31, 2016. The current version of the auditing interpretations can be found here.

AU Section 9333

Management Representations: Auditing Interpretations of Section 333

• (.01 - .04) Management Representations on Violations and Possible Violations of Laws and Regulations

1.    Management Representations on Violations and Possible Violations of Laws and Regulations

.01

Question—Section 333, Management Representations, lists matters for which the auditor ordinarily obtains written representations from management. One of those matters is: Violations or possible violations of laws or regulations whose effects should be considered for disclosure in financial statements or as a basis for recording a loss contingency.

.02

Guidance on evaluating the need to disclose litigation, claims, and assessments that may result from possible violations is provided by FASB Statement No. 5, Accounting for Contingencies [AC section C59]. Section 317, Illegal Acts by Clients, provides guidance on evaluating the materiality of illegal acts. Does the representation regarding "possible violations" include matters beyond those described in FASB Statement No. 5 [AC section C59] and section 317?

.03

Interpretation—No. Section 333 did not change the relevant criteria for evaluating the need for disclosure of violations and possible violations of laws or regulations. In requesting the representation on possible violations, the auditor is not asking for management's speculation on all possibilities of legal challenges to its actions.

.04

The representation concerns matters that have come to management's attention and that are significant enough that they should be considered in determining whether financial statement disclosures are necessary. It recognizes that these are matters of judgment and that the need for disclosure is not always readily apparent.

[Issue Date: March, 1979.]