Acca aa s21 Notes

2. Contingent asset
A
 contingent asset
is a possible asset arising from past events but whose existence will only be 
confirmed by future events.
The treatment of contingent asset is similar to that of contingent liabilities, but more cautious. 
๏
If an inflow of economic benefits is virtually certain then the asset is not contingent: it’s a real 
asset and should be showed in the statement of financial position.
๏
If the inflow of economic benefits is merely probable, not virtually certain, then it would be 
imprudent to recognise an asset. However, as an asset is more likely than not to materialise, it 
should be disclosed in a note to the financial statements.
๏
If the inflow is not probable, it is not expected to materialise and does not merit disclosure. 
Note that the treatment of contingent assets and liabilities though similar is not symmetrical:
Flow of resources 
Outflow
Inflow
Remote 
No disclosure 
No disclosure
Probably not, but possible 
Contingent liability disclosure 
No disclosure
Probable 
Provision (if reliable estimate) - 
otherwise a contingent liability
Disclosure required
Expected/virtually certain
Provision 
Asset (i.e. not contingent)
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Chapter 28
WRITTEN REPRESENTATIONS
1. Introduction
The final letter to be discussed is the management representation or letter of representation, which is 
addressed to the auditor. In accordance with ISA 580 
Written Representations
, the auditor must obtain 
written representations from management (and, where appropriate, TCWG) that:
๏
It acknowledges its responsibility for the preparation of the financial statements in accordance 
with the applicable financial reporting framework;
๏
It has provided the auditor with all relevant information; and 
๏
All transactions have been recorded and are reflected in the financial statements.
Examples of other representations that are typically required by other ISAs are listed in section 2 
below.
In particular, letters of representation are important where it could be difficult for the auditors to 
make sure that certain problems do not exist, or that management does not have certain intentions or 
plans. If you don’t know about a liability it can be difficult to discover. It can also be difficult to 
discover management plans if they have not been discussed at board meetings and recorded in the 
board minutes.
Management representations