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Management Representation Letter

Last Updated :

21 Aug, 2024

Blog Author :

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya

Table Of Contents

What Is Management Representation Letter?

A management representation letter is a document provided by management to auditors to confirm the accuracy and completeness of financial information and disclosures. Its purpose is to attest to the accuracy and completeness of the information the management provided to the auditors.

The letter is an important part of the audit process, assuring auditors that the financial information they are examining is reliable. The letter is usually signed by senior management, such as the CEO or CFO , and is included in the audit documentation. Management acknowledges its responsibility for the financial statements and the information's accuracy by signing the letter.

Table of contents

Management representation letter explained.

• Management Representation Letter vs. Management Letter

Frequently Asked Questions (FAQs)

Recommended articles.

• A management representation letter is a formal document issued by senior management of an organization confirming the accuracy and completeness of financial information presented in the financial statements.
• It is a critical document that helps auditors or other parties to obtain reasonable assurance that the financial statements are reliable.
• The letter should include specific representations regarding financial statements, disclosures, and other significant matters that could impact the financial statements.
• Management representation letter is required as part of an audit engagement and may be requested in other types of engagements such as reviews and compilations.

A management representation letter is a document management provides to auditors to confirm the accuracy and completeness of financial information and disclosures. Also, It attests to the accuracy and completeness of management's information to the auditors. Thus, it confirms that management has provided all the relevant information required for the audit and that it is accurate and complete.

The letter also confirms that management has disclosed any potential legal or financial liabilities that could impact the organization's financial statements. Thus, it assures auditors that the financial information they are examining is reliable. Also, it is signed by senior management as part of the audit documentation .

The letter asks management to confirm that they have provided all the required information for the audit. Also, that information is accurate and complete. The letter also confirms that management has disclosed any potential legal or financial liabilities that could impact the organization's financial statements.

Let us look at the following examples to understand the concept better.

Consider a company, Amacon Corporation, that provides management representation letters to their auditors.

In the letter, the senior management of Amacon Corporation will confirm that they have provided all the financial information and disclosures required for the audit and that the information is accurate and complete. They will also confirm that they have disclosed any potential legal or financial liabilities that could impact the organization's financial statements.

For example, the management representation letter may confirm that Amacon Corporation has disclosed any potential lawsuits or regulatory investigations that could impact its financial statements. It may also confirm that all financial transactions have been accurately recorded and all financial reports are complete and correct. Thus, by providing the letter, Amacon Corporation assures its auditors that the financial information is reliable and accurate.

Suppose a nonprofit organization, HappyLives Foundation, is seeking funding from a government age government agency that may require a management representation letter from the senior management of HappyLives Foundation. It confirms the accuracy of the financial information and disclosures in the grant application.

In this case, the management representation letter would attest that all the financial information presented in the grant application is accurate. The letter would also confirm that all financial transactions have been accurately recorded. Also, all financial reports are complete and correct. Thus, by providing the letter, HappyLives Foundation assures the government agency that the financial information in the grant application is reliable and accurate.

The specific format may vary depending on the requirements of the recipient of the letter. However, the letter is prepared clearly and concisely, and all required information is included to ensure the recipient's effectiveness.

The format of a management representation letter typically includes the following elements:

• Date: The date on which the letter is prepared.
• Addressee: The letter is addressed to the auditors or the party that requires the letter.
• Introduction: A brief introduction that identifies the management providing the representation, the letter's purpose, and the audit's scope.
• Management's Responsibility: A statement acknowledging their responsibility for the financial statements and the information's accuracy.
• Specific Representations: A list of specific representations that management makes, which may include disclosures of potential liabilities, completeness of financial information, and accuracy of financial statements.
• Signature: The letter is signed by senior management, such as the CEO or CFO, to indicate their agreement with the representations being made.

There are several benefits of providing a management representation letter:

#1 - Provides Assurance

The letter assures the auditors or other parties that the financial information in the financial statements is reliable and accurate.

#2 - Demonstrates Responsibility

The letter demonstrates that management is taking responsibility for the financial statements and the information contained within them.

#3 - Identifies Potential Issues

The letter requires management to identify potential legal or financial liabilities impacting the organization's financial statements. Thus, it allows for early identification and management of its potential issues.

#4 - Reduces Auditor's Risk

By providing a letter, management can help to reduce the auditor's risk and increase their confidence in the financial information provided. In addition, it potentially reduces the amount of work required during the audit.

#5 - Improves Communication

The letter can help to improve communication between management and the auditors or other parties. Thus, it ensures that all relevant information is provided and potential issues are identified and addressed.

Management Representation Letter vs Management Letter

Management Representation Letters are not required for reviews as they are less extensive than audits and do not require the same level of assurance. However, in some cases, the reviewer may request a representation letter to provide additional assurance regarding the accuracy and completeness of the financial information provided.

Yes, a Management Representation Letter should be on the company's official letterhead to ensure it is a formal representation of the organization. In addition, the use of official letterhead helps to identify the letter's source and assures that it is genuine communication from the organization.

Yes, a compilation engagement requires a Management Representation Letter. The letter is required to assure the accountant that the financial statements and disclosures are accurate and complete to the best of management's knowledge. Therefore, the letter is an important component of the compilation engagement and helps to assure the financial statements.

To obtain a Management Representation Letter, you should request it from senior management, provide a template that includes all the necessary elements, review the letter for accuracy and completeness, and have it signed by the appropriate signatories. The letter should be obtained during an audit, review, or compilation engagement.

This article has been a guide to what is Management Representation Letter. We explain it with its format, examples, difference with management letter, and benefits. You may also find some useful articles here -

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Understanding an Audit Letter of Representation (LOR)

This article addresses the what, when, why, and who’s related to letters of representation for audits, specifically SOC audits.

What is a Letter of Representation?

A letter of representation (a.k.a., representation letter, rep. letter, LOR) in audit services is a form letter from the American Institute of Certified Public Accountants typically prepared by the external auditors on behalf of a company’s management that is signed by a member of executive leadership. By signing the letter of representation, the executive attests to the external auditor that all of the information submitted is accurate, and that all material information has been disclosed to the auditors. For a financial audit, that material would be the financial statements and internal controls over financial reports. In the context of a SOC 1  or SOC 2  examination, company representation letters allow the management of the company to not only confirm that all material information has been disclosed to the service auditors, but also to take responsibility for the presentation and accuracy of the assertion and description in the report and to confirm that the controls were designed and operating effectively during the period of the assessment.

As you can imagine, a letter of representation is an important piece of evidence in any audit. Management’s representations and attestations in the letter provide some assurance that the information provided during the examination is reliable to use in audit procedures and to base its opinion. Management’s attestation in the representation letters also shifts blame to management in the case that a control failure is missed during an audit or inaccuracies because information was not made available or disclosed to the service auditor.

When is a Letter of Representation Prepared?

As it is a form letter, a letter of representation may be prepared at any point during a SOC 1 or SOC 2 examination. However, paragraph .54 of AT-C section 205 (SSAE 18) specifies that a representation letter must be dated as of the date of the service auditor’s report. The letter may be signed any time from the date of the report and the report is issued. However, because it is an important piece of evidence supporting an audit opinion, the letter of representation should be signed before the report is issued ( AICPA’s SOC 1 Guide 4.189).

Why is the Letter of Representation Important?

As noted earlier, the simple answer is that the letter of representation is required by the American Institute of Certified Public Accountants, the governing body for attestation services. If management refuses to provide the requested representations, the service auditor would consider it “a limitation on the scope of the examination sufficient to preclude an unmodified opinion and may be sufficient to cause the practitioner to withdraw from the engagement” (Paragraph .A64 of AT-C section 205 ). Similar actions would be taken should the service auditor conclude that there is sufficient doubt about the competence, integrity, ethical values, or diligence of those providing the written representations; or the service auditor concludes that the written representations are otherwise not reliable and is unable to resolve the concerns through additional procedures. From a practical standpoint, because management’s written representations are an important consideration when forming the service auditor’s opinion, the service auditor would not ordinarily be able to issue the report until the service auditor had received the representation letter.

Who is Responsible for the Letter of Representation?

The AICPA’s guidance requires, when the engagement covers a modified or extended period, that the auditor obtain management’s written representation in the form of a representation letter addressed to the auditor. The AICPA requires that the service auditor request the written representations from management.

What are the Contents of a Letter of Representation in Auditing?

Paragraph .38 of AT-C section 320 (SSAE 18) states that “the service auditor to request from management written representations required by paragraph .50 of AT-C section 205 as well as those required by paragraph .36 of AT-C section 320 .” The auditor and management may add additional representations to the letter. The written representations required by paragraph .50 of AT-C section 205 are identified in items a-i and the written representations required by paragraph .36 of AT-C section 320 in items j-k.

The following summarizes the minimal representations to be included in the letter:

A. Include the management’s assertion about the description, controls, control objectives (SOC 1), and trust services criteria (SOC 2) based on the criteria.

B. A statement that all relevant matters are reflected in the description or evaluation of the related controls or assertion.

C. A statement that all known matters contradicting the control objectives, trust services criteria, or assertion and any communications from regulatory agencies or others affecting the control objectives, trust services criteria, or assertion have been disclosed to the practitioner, including any communications between the end of the period addressed and the written assertion and the date of the service auditor’s report.

D. Acknowledge responsibility for:

• the description in the report and the assertion:
• selecting the applicable criteria; and
• determining that the applicable criteria is appropriate.

E. A statement that any events after to the period (or point in time) related to the description, control objectives, or trust services criteria being reported on, which would have a material effect on the control objectives, trust services criteria, or assertion, have been disclosed to the auditor.

F. A statement that the individual signing and the company have provided the service auditor with all relevant information and access.

G. When applicable, a statement that the individual signing believes the effects of uncorrected misstatements are immaterial, when considered individually and in aggregate, to the control objectives or trust services criteria.

H. When applicable, a statement that significant assumptions used to make any material estimates are reasonable.

I. A statement that the individual signing and the company have disclosed the following to the service auditor:

• Any and all deficiencies in internal control relevant to the engagement of which the responsible party is aware;
• Knowledge of any actual, suspected, or alleged fraud or violation of laws or regulations affecting the control objectives or trust services criteria; and
• Other matters as the service auditor deems appropriate.

J. A statement that any instances of noncompliance with laws and regulations or uncorrected misstatements attributable to the service organization that may affect one or more user entities have been disclosed to the service auditor.

K. A statement that any knowledge of actual, suspected, or alleged fraud by the management or employees of the service organization that could adversely affect the fairness of the presentation of management’s description of the service organization’s system or the completeness or achievement of the control objectives stated in the description have been disclosed to the service auditor.

An audit letter of representation is a form letter prepared by a company’s service auditor and signed by a member of senior management. In the letter, management attests to the accuracy and completeness of the information provided to the service auditors for their analysis. The letter must be dated as of the date of the report and signed on or after that date. The service auditor must obtain a signed representation letter that includes, at a minimum, the required representations specified by the AICPA in order to opine an audit.

Isaac Clarke is a partner at Linford & Co., LLP. He began his career with Ernst & Young in 2003 where he developed his audit expertise over a number of years. Isaac specializes in and has conducted numerous SOC 1 and SOC 2 examinations for a variety of companies—from startups to Fortune 100 companies. Isaac enjoys helping his clients understand and simplify their compliance activities. He is attentive to his clients’ needs and works meticulously to ensure that each examination and report meets professional standards.

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AS 2805: Management Representations

Amendments to footnote 1 to paragraph .02 have been adopted by the PCAOB and approved by the U.S. Securities and Exchange Commission. The amendments will be effective for audits of financial statements for fiscal years beginning on or after December 15, 2024. See PCAOB Release No. 2024-004 , SEC Release No. 34-100773 .  View the standard as amended .

Summary Table of Contents

• .01  Introduction
• .02  Reliance on Management Representations
• .05  Obtaining Written Representations
• .13  Scope Limitations
• .15  Effective Date
• .16  Appendix A - Illustrative Management Representation Letter
• .17  Appendix B - Additional Illustrative Representations
• .18  Appendix C - Illustrative Updating Management Representation Letter

Introduction

.01        This section establishes a requirement that the independent auditor obtain written representations from management as a part of an audit of financial statements performed in accordance with the standards of the PCAOB and provides guidance concerning the representations to be obtained.

Reliance on Management Representations

.02        During an audit, management makes many representations to the auditor, both oral and written, in response to specific inquiries or through the financial statements. Such representations from management are part of the evidential matter the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit. Written representations from management ordinarily confirm representations explicitly or implicitly given to the auditor, indicate and document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding concerning the matters that are the subject of the representations. 1

.03        The auditor obtains written representations from management to complement other auditing procedures. In many cases, the auditor applies auditing procedures specifically designed to obtain evidential matter concerning matters that also are the subject of written representations. For example, after the auditor performs the procedures described in AS 2410, Related Parties , the auditor should obtain a written representation that management has no knowledge of any relationships or transactions with related parties that have not been properly accounted for and adequately disclosed. The auditor should obtain this written representation even if the results of those procedures indicate that relationships and transactions with related parties have been properly accounted for and adequately disclosed. In some circumstances, evidential matter that can be obtained by the application of auditing procedures other than inquiry is limited; therefore, the auditor obtains written representations to provide additional evidential matter. For example, if an entity plans to discontinue a line of business and the auditor is not able to obtain sufficient information through other auditing procedures to corroborate the plan or intent, the auditor obtains a written representation to provide evidence of management's intent.

.04        If a representation made by management is contradicted by other audit evidence, the auditor should investigate the circumstances and consider the reliability of the representation made. Based on the circumstances, the auditor should consider whether his or her reliance on management's representations relating to other aspects of the financial statements is appropriate and justified.

Obtaining Written Representations

.05        Written representations from management should be obtained for all financial statements and periods covered by the auditor's report. 2 For example, if comparative financial statements are reported on, the written representations obtained at the completion of the most recent audit should address all periods being reported on. The specific written representations obtained by the auditor will depend on the circumstances of the engagement and the nature and basis of presentation of the financial statements. The auditor should provide a copy of the representation letter to the audit committee if management has not already provided the representation letter to the audit committee.

Note: When performing an integrated audit of financial statements and internal control over financial reporting, refer to paragraphs .75-.77 of AS 2201, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements , for additional required written representations to be obtained from management.

.06        In connection with an audit of financial statements presented in accordance with generally accepted accounting principles, specific representations should relate to the following matters: 3

Financial Statements

• Management's acknowledgment of its responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.
• Management's belief that the financial statements are fairly presented in conformity with generally accepted accounting principles.

Completeness of Information

• Availability of all financial records and related data, including the names of all related parties and all relationships and transactions with related parties.
• Completeness and availability of all minutes of meetings of stockholders, directors, and committees of directors.
• Communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
• Absence of (1) unrecorded transactions  and (2) side agreements or other arrangements (either written or oral) undisclosed to the auditor .

Recognition, Measurement, and Disclosure

• Management's belief that the effects of any uncorrected financial statement misstatements 4 aggregated by the auditor during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 5 (A summary of such items should be included in or attached to the letter.) 6 , 7
• Management's acknowledgment of its responsibility for the design and implementation of programs and controls to prevent and detect fraud.
• Knowledge of fraud or suspected fraud affecting the entity involving (1) management, (2) employees who have significant roles in internal control, or (3) others where the fraud could have a material effect on the financial statements.
• Knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others.
• Plans or intentions that may affect the carrying value or classification of assets or liabilities.
• Information concerning related party transactions and amounts receivable from or payable to related parties, including support for any assertion that a transaction with a related party was conducted on terms equivalent to those prevailing in an arm's-length transaction. 9
• Guarantees, whether written or oral, under which the entity is contingently liable.
• Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties .
• Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency. 10
• Unasserted claims or assessments that the entity's lawyer has advised are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies [AC section C59]. 11
• Other liabilities and gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5 [AC section C59]. 12
• Satisfactory title to assets, liens or encumbrances on assets, and assets pledged as collateral.
• Compliance with aspects of contractual agreements that may affect the financial statements.

  s-1 .    The appropriateness of the methods, the consistency in application, the accuracy and completeness of data, and the reasonableness of significant assumptions used by the company in developing accounting estimates.

Subsequent Events

• Information concerning subsequent events. 13

.07        The representation letter ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity's business or industry. Examples of additional representations that may be appropriate are provided in appendix B, "Additional Illustrative Representations" [paragraph .17].

.08        Management's representations may be limited to matters that are considered either individually or collectively material to the financial statements, provided management and the auditor have reached an understanding on materiality for this purpose. Materiality may be different for different representations. A discussion of materiality may be included explicitly in the representation letter, in either qualitative or quantitative terms. Materiality considerations would not apply to those representations that are not directly related to amounts included in the financial statements, for example, items ( a ), ( c ), ( d ), and ( e ) above. In addition, because of the possible effects of fraud on other aspects of the audit, materiality would not apply to item ( h ) above with respect to management or those employees who have significant roles in internal control.

.09        The written representations should be addressed to the auditor. Because the auditor is concerned with events occurring through the date of his or her report that may require adjustment to or disclosure in the financial statements, the representations should be made as of the date of the auditor's report. [If the auditor "dual dates" his or her report, the auditor should consider whether obtaining additional representations relating to the subsequent event is appropriate. See paragraph .05 of AS 3110, Dating of the Independent Auditor's Report ]. The letter should be signed by those members of management with overall responsibility for financial and operating matters whom the auditor believes are responsible for and knowledgeable about, directly or through others in the organization, the matters covered by the representations. Such members of management normally include the chief executive officer and chief financial officer or others with equivalent positions in the entity.

.10        If current management was not present during all periods covered by the auditor's report, the auditor should nevertheless obtain written representations from current management on all such periods. The specific written representations obtained by the auditor will depend on the circumstances of the engagement and the nature and basis of presentation of the financial statements. As discussed in paragraph .08, management's representations may be limited to matters that are considered either individually or collectively material to the financial statements.

.11        In certain circumstances, the auditor may want to obtain written representations from other individuals. For example, he or she may want to obtain written representations about the completeness of the minutes of the meetings of stockholders, directors, and committees of directors from the person responsible for keeping such minutes. Also, if the independent auditor performs an audit of the financial statements of a subsidiary but does not audit those of the parent company, he or she may want to obtain representations from management of the parent company concerning matters that may affect the subsidiary, such as related-party transactions or the parent company's intention to provide continuing financial support to the subsidiary.

.12        There are circumstances in which an auditor should obtain updating representation letters from management. If a predecessor auditor is requested by a former client to reissue (or consent to the reuse of) his or her report on the financial statements of a prior period, and those financial statements are to be presented on a comparative basis with audited financial statements of a subsequent period, the predecessor auditor should obtain an updating representation letter from the management of the former client. 15 Also, when performing subsequent events procedures in connection with filings under the Securities Act of 1933, the auditor should obtain certain written representations. 16 The updating management representation letter should state ( a ) whether any information has come to management's attention that would cause them to believe that any of the previous representations should be modified, and ( b ) whether any events have occurred subsequent to the balance-sheet date of the latest financial statements reported on by the auditor that would require adjustment to or disclosure in those financial statements. 17

Scope Limitations

.13        Management's refusal to furnish written representations constitutes a limitation on the scope of the audit sufficient to preclude an unqualified opinion and is ordinarily sufficient to cause an auditor to disclaim an opinion or withdraw from the engagement. 18 However, based on the nature of the representations not obtained or the circumstances of the refusal, the auditor may conclude that a qualified opinion is appropriate. Further, the auditor should consider the effects of the refusal on his or her ability to rely on other management representations.

.14        If the auditor is precluded from performing procedures he or she considers necessary in the circumstances with respect to a matter that is material to the financial statements, even though management has given representations concerning the matter, there is a limitation on the scope of the audit, and the auditor should qualify his or her opinion or disclaim an opinion.

Effective Date

.15        This section is effective for audits of financial statements for periods ending on or after June 30, 1998. Earlier application is permitted.

Appendix A - Illustrative Management Representation Letter

.16        

1.    The following letter, which relates to an audit of financial statements prepared in conformity with generally accepted accounting principles, is presented for illustrative purposes only. The introductory paragraph should specify the financial statements and periods covered by the auditor's report, for example, "balance sheets of XYZ Company as of December 31, 19X1 and 19X0, and the related statements of income and retained earnings and cash flows for the years then ended." The written representations to be obtained should be based on the circumstances of the engagement and the nature and basis of presentation of the financial statements being audited. ( See appendix B [paragraph .17]).

2.    If matters exist that should be disclosed to the auditor, they should be indicated by modifying the related representation. For example, if an event subsequent to the date of the balance sheet has been disclosed in the financial statements, the final paragraph could be modified as follows: "To the best of our knowledge and belief, except as discussed in Note X to the financial statements, no events have occurred" In appropriate circumstances, item 9 could be modified as follows: "The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities, except for its plans to dispose of segment A, as disclosed in Note X to the financial statements, which are discussed in the minutes of the December 7, 20X1, meeting of the board of directors." Similarly, if management has received a communication regarding an allegation of fraud or suspected fraud, item 8 could be modified as follows: "Except for the allegation discussed in the minutes of the December 7, 20X1, meeting of the board of directors (or disclosed to you at our meeting on October 15, 20X1), we have no knowledge of any allegations of fraud or suspected fraud affecting the company received in communications from employees, former employees, analysts, regulators, short sellers, or others."

3.    The qualitative discussion of materiality used in the illustrative letter is adapted from FASB Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information .

4.    Certain terms are used in the illustrative letter that are described elsewhere in authoritative literature. Examples are fraud, in AS 2401, Consideration of Fraud in a Financial Statement Audit , and related parties, in AS 2410,  Related Parties . To avoid misunderstanding concerning the meaning of such terms, the auditor may wish to furnish those definitions to management or request that the definitions be included in the written representations.

5.    The illustrative letter assumes that management and the auditor have reached an understanding on the limits of materiality for purposes of the written representations. However, it should be noted that a materiality limit would not apply for certain representations, as explained in paragraph .08 of this section.

To [ Independent Auditor ]

We are providing this letter in connection with your audit(s) of the [ identification of financial statements ] of [ name of entity ] as of [ dates ] and for the [ periods ] for the purpose of expressing an opinion as to whether the [ consolidated ] financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of [ name of entity ] in conformity with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation in the [ consolidated ] financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.

Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.

We confirm, to the best of our knowledge and belief, [ as of (date of auditor's report), ] the following representations made to you during your audit(s).

• The financial statements referred to above are fairly presented in conformity with accounting principles generally accepted in the United States of America.
• Financial records and related data, including the names of all related parties and all relationships and transactions with related parties.
• Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared.
• There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
• There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements.
• We believe that the effects of the uncorrected financial statement misstatements summarized in the accompanying schedule are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 1
• We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud.
• Management,
• Employees who have significant roles in internal control, or
• Others where the fraud could have a material effect on the financial statements.
• We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others.
• The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.
• Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties.
• Guarantees, whether written or oral, under which the company is contingently liable.
• Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties. [ Significant estimates are estimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year. ]
• Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.
• Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies . 2
• Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5.
• Side agreements or other arrangements (either written or oral) that have not been disclosed to you.
• The company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.
• The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

[ Add additional representations that are unique to the entity's business or industry. See paragraph .07 and appendix B [paragraph .17] of this section. ]

To the best of our knowledge and belief, no events have occurred subsequent to the balance-sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

____________________________________________ [ Name of Chief Executive Officer and Title ]

____________________________________________ [ Name of Chief Financial Officer and Title ]

[As amended, effective for audits of financial statements for periods beginning on or after December 15, 1999 by Statement on Auditing Standards No. 89. As amended, effective for audits of financial statements for periods beginning on or after December 15, 2002, by Statement on Auditing Standards No. 99.]

Appendix B - Additional Illustrative Representations

.17        

1.    As discussed in paragraph .07 of this section, representation letters ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity's business or industry. The following is a list of additional representations that may be appropriate in certain situations. This list is not intended to be all-inclusive. The auditor also should consider the effects of pronouncements issued subsequent to the issuance of this section.

Appendix C - Illustrative Updating Management Representation Letter

.18        

1.    The following letter is presented for illustrative purposes only. It may be used in the circumstances described in paragraph .12 of this section. Management need not repeat all of the representations made in the previous representation letter.

2.    If matters exist that should be disclosed to the auditor, they should be indicated by listing them following the representation. For example, if an event subsequent to the date of the balance sheet has been disclosed in the financial statements, the final paragraph could be modified as follows: "To the best of our knowledge and belief, except as discussed in Note X to the financial statements, no events have occurred. . . ."

    [ Date ]

    To [ Auditor ]

    In connection with your audit(s) of the [ identification of financial statements ] of [ name of entity ] as of [ dates ] and for the [ periods ] for the purpose of expressing an opinion as to whether the [ consolidated ] financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of [ name of entity ] in conformity with accounting principles generally accepted in the United States of America, you were previously provided with a representation letter under date of [ date of previous representation letter ]. No information has come to our attention that would cause us to believe that any of those previous representations should be modified.

    To the best of our knowledge and belief, no events have occurred subsequent to [ date of latest balance sheet reported on by the auditor ] and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

    __________________________________________ [ Name of Chief Executive Officer and Title ]

    __________________________________________ [ Name of Chief Financial Officer and Title ]

[Revised, October 2000, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 93.]

Footnotes (AS 2805 - Management Representations):

1 AS 1015, Due Professional Care in the Performance of Work , states, "The auditor neither assumes that management is dishonest nor assumes unquestioned honesty. In exercising professional skepticism, the auditor should not be satisfied with less than persuasive evidence because of a belief that management is honest."

2 An illustrative representation letter from management is contained in appendix A, "Illustrative Management Representation Letter" [paragraph .16].

3 Specific representations also are applicable to financial statements presented in conformity with a comprehensive basis of accounting other than generally accepted accounting principles. The specific representations to be obtained should be based on the nature and basis of presentation of the financial statements being audited.

4 AS 2810, Evaluating Audit Results, indicates that a misstatement can arise from error or fraud and also discusses the auditor's responsibilities for evaluating accumulated misstatements .

5 If management believes that certain of the identified items are not misstatements, management's belief may be acknowledged by adding to the representation, for example, "We do not agree that items XX and XX constitute misstatements because [description of reasons]." 

6 AS 2810.11 states that the auditor may designate an amount below which misstatements need not be accumulated. Similarly, the summary of uncorrected misstatements included in or attached to the representation letter need not include such misstatements. The summary should include sufficient information to provide management with an understanding of the nature, amount, and effect of the uncorrected misstatements. Similar items may be aggregated.

7 The communication to management of immaterial misstatements aggregated by the auditor does not constitute a communication pursuant to paragraph .17 of AS 2405, Illegal Acts by Clients , Section 10A of the Securities Exchange Act of 1934, or paragraphs .79 through .82 of AS 2401, Consideration of Fraud in a Financial Statement Audit . The auditor may have additional communication responsibilities pursuant to AS 2405, Section 10A of the Securities Exchange Act of 1934, or AS 2401.

[8] [Footnote deleted.]

9 See AS 2410.18. 

10 See AS 2405. 

11 See paragraph .05 d of AS 2505, Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments. If the entity has not consulted a lawyer regarding litigation, claims, and assessments, the auditor normally would rely on the review of internally available information and obtain a written representation by management regarding the lack of litigation, claims, and assessments; see auditing Interpretation No. 6, "Client Has Not Consulted a Lawyer" (paragraphs .15-.17 of AI 17, Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments: Auditing Interpretations of AS 2505 ) .

12 See AS 2505.05 b . 

13 See paragraph .12 of AS 2801, Subsequent Events , paragraph .10 of AS 4101, Responsibilities Regarding Filings Under Federal Securities Statutes , and paragraph .45, footnote 31 of AS 6101, Letters for Underwriters and Certain Other Requesting Parties . 

[14] [Footnote deleted.]

15 See paragraph .55 of AS 3105 , Departures from Unqualified Opinions and Other Reporting Circumstances .

16 See AS 4101.10. 

17 An illustrative updating management representation letter is contained in appendix C, "Illustrative Updating Management Representation Letter" [paragraph .18]. 

18 See AS 3105.05–.17. 

Footnotes (Appendix A - Illustrative Management Representation Letter):

1 If management believes that certain of the identified items are not misstatements, management's belief may be acknowledged by adding to the representation, for example, "We do not agree that items XX and XX constitute misstatements because [ description of reasons ]." 

2 In the circumstance discussed in footnote 11 of this section, this representation might be worded as follows:

    We are not aware of any pending or threatened litigation, claims, or assessments or unasserted claims or assessments that are required to be accrued or disclosed in the financial statements in accordance with Financial Accounting Standards Board Statement No. 5,  Accounting for Contingencies , and we have not consulted a lawyer concerning litigation, claims, or assessments.

What is a Representation Letter?

A representation letter is a written statement provided by a company’s management to its auditors as part of the audit process. The representation letter confirms that the information provided to the auditors is complete, accurate, and fairly presented in accordance with the applicable financial reporting framework. The letter also confirms that the management has disclosed to the auditors all relevant information that may be necessary for the auditors to properly understand the company’s financial position, results of operations, and cash flows. The representation letter helps to ensure that the auditors have all the necessary information to conduct an audit in accordance with professional standards.

Why is a Representation Letter Required?

The purpose of the representation letter is to provide the auditor with assurance that the financial statements accurately reflect the company’s financial position and performance. The letter also helps the auditor to identify any potential areas of concern or risk that may need to be addressed during the audit process.

Contents of a Representation Letter

A representation letter typically includes the following:

• A statement that the financial statements being audited are complete and accurate
• A statement that the financial statements are in accordance with generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS)
• A statement that the company’s management team is responsible for the preparation and fair presentation of the financial statements
• A statement that the company’s management team has made all necessary disclosures in the financial statements
• A statement that the company’s management team has disclosed all material transactions and events that have occurred during the period being audited
• A statement that the company’s management team has disclosed all material off-balance sheet transactions, arrangements, and obligations
• A statement that the company’s management team has disclosed all material changes in accounting principles that have occurred during the period being audited
• A statement that the company’s management team has disclosed all material related-party transactions that have occurred during the period being audited
• A statement that the company’s management team has disclosed all material contingencies and commitments that have occurred during the period being audited

The representation letter may also include other representations, such as a representation that the company has complied with all relevant laws and regulations, and that there are no pending legal proceedings that could have a material impact on the financial statements.

Importance of the Representation Letter

The representation letter is an important part of the audit process, as it provides the auditor with assurance that the financial statements are accurate and complete. This helps the auditor to form an opinion on the financial statements and to issue an audit report stating whether the financial statements are presented fairly, in all material respects.

Without a representation letter, the auditor may not be able to complete the audit, as they may not have sufficient evidence to form an opinion on the financial statements. This could lead to delays or other issues in the audit process, and may impact the company’s ability to obtain financing or meet other regulatory requirements.

In summary, a representation letter is a written statement signed by the company’s management that confirms the accuracy and completeness of the financial statements. It is an important part of the audit process, as it helps the auditor to form an opinion on the financial statements and to issue an audit report.

Amy is a Certified Public Accountant (CPA), having worked in the accounting industry for 14 years. She is a seasoned finance executive having held various positions both in public accounting and most recently as the Chief Financial Officer of a large manufacturing company based out of Michigan.

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What is a Management Representation Letter?

Written by Santiago Poli on Dec 22, 2023

Getting through financial audits can be frustrating for companies, especially when asked to provide management representation letters.

This article will clarify exactly what a management representation letter is, why auditors request them, what should be included, and provide examples to make the process smooth and compliant.

You'll learn the purpose of these letters, see template examples, understand international audit standards, and gain key takeaways to improve financial reporting at your organization.

Introduction to Management Representation Letters

A management representation letter is a formal document signed by a company's senior management that is provided to external auditors. It contains certain written representations that auditors require in order to complete an audit and form an opinion on the company's financial statements.

Defining the Management Representation Letter in Audit Context

The management representation letter serves an important role within the financial statement audit process. Auditors use it as audit evidence to support their assessment of whether the financial statements are free of material misstatement. Specifically, auditors request written confirmation from management regarding the accuracy and completeness of information provided during the audit. This includes representations related to:

• The financial statements and adequacy of disclosures
• Proper recording of transactions and account balances
• Internal controls over financial reporting
• Compliance with laws and regulations

By obtaining these written representations from management, auditors gain additional audit evidence to complete their testing and analysis. The management representation letter also outlines management's responsibilities under the audit engagement.

Essential Components of a Management Representation Letter

A standard management representation letter contains certain key statements that auditors rely upon. These include:

• Financial statement disclosures : Confirmation that management has provided the auditors with all relevant information and access needed to perform the audit.
• Recognition, measurement and disclosure : Assertion that the financial statements comply with the applicable financial reporting framework and standards.
• Non-compliance : Disclosure of any non-compliance with laws and regulations.
• Litigation and claims : Details of any actual, pending or threatened litigation and claims that could impact the financial statements.

The letter will also typically list areas of significant estimates and judgments made by management in preparing the financial statements. For example, allowances for doubtful accounts, asset impairment assessments , and assumptions used in valuation models.

By obtaining written representation on these matters, auditors gain evidence to issue their audit opinion. The management representation letter should be signed by the CEO and CFO or equivalent members of senior management.

Legal and Ethical Implications of Management Representations

Signing a management representation letter has legal and ethical implications. Management must ensure representations made to the auditors are accurate and made in good faith. Intentionally misrepresenting information or omitting relevant details could constitute fraud and result in legal liability.

Auditors also have a duty to assess the reasonableness of management representations and corroborate them with other audit evidence. Relying solely on management representations without further verification could call into question the quality of the audit.

Overall, the management representation letter facilitates open and transparent communication between management and auditors. It serves as a legally binding confirmation of management's fulfillment of its financial reporting responsibilities.

What is the main purpose of a management representation letter?

The main purpose of a management representation letter is to obtain written confirmation from management that they have fulfilled their responsibility for the fair presentation of the financial statements. This letter documents that management has provided the auditors with all relevant information and access needed to conduct the audit.

Some key purposes of the management representation letter include:

Confirming management's responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework (e.g. GAAP or IFRS).

Affirming that management has provided the auditors with all relevant information and access to records, documentation and personnel that is necessary for the audit.

Disclosing any instances of fraud involving management, employees with significant internal control roles, or those that cause a material misstatement of the financial statements.

Presenting details on matters that impact the financial statements - such as plans or intentions that may affect asset/liability carrying values, information about related parties, contingencies, subsequent events, etc.

Stating that all transactions have been recorded and are reflected in the financial statements. This helps confirm completeness and cut-off assertions.

So in summary, the management representation letter serves as important audit evidence that validates information provided by management to the auditors. It also formally documents management's responsibilities and representations concerning the financial statements.

What is the meaning of management representation?

Management representation refers to written confirmation provided by management of an entity to the auditors regarding the accuracy and completeness of financial statements and adequacy of internal controls.

The management representation letter is a key audit evidence prepared at the completion of the audit process. It contains management's assertions regarding:

• Fair presentation of financial statements
• Completeness of information provided to auditors
• Proper accounting policies used
• Reasonableness of significant estimates made

Essentially, through this letter, management takes responsibility for the fair presentation of the financial statements. They confirm to the auditors that they have fulfilled their financial reporting responsibilities.

The management representation letter covers all periods encompassed by the audit report and is dated the same date as the completion of audit fieldwork. It is addressed to the engagement partner and signed by those with appropriate responsibilities for the financial statements, usually the Chief Executive Officer and Chief Financial Officer.

By obtaining written representations from management, the auditors demonstrate they have obtained sufficient appropriate audit evidence to support their audit opinion. The representations serve as necessary supplementary corroboration of management's oral assertions made during the audit.

In summary, the management representation letter is a written statement from management provided to the auditors as part of the audit evidence. It confirms management's compliance with financial reporting responsibilities to enable auditors to form their audit opinion.

What is an example of a management representation letter?

We are providing this letter in connection with your audit of the cost representation statement of USAID resources managed by (Client Name) under Contract No. XXX “Project Name” for the period MM/DD/YY to MM/DD/YY.

We confirm, to the best of our knowledge and belief, the following representations made to you during your audit:

• We have made available to you all financial records and related data, including service auditor reports.
• There have been no communications from regulatory agencies concerning noncompliance with or deficiencies on financial reporting practices.
• We have no knowledge of any known or suspected fraudulent financial reporting or misappropriation of assets involving management or employees with significant roles in internal control.
• We have disclosed to you the results of our assessment of risk that the cost representation statement may be materially misstated as a result of fraud.
• There are no material transactions that have not been properly recorded in the accounting records.
• We believe the effects of any uncorrected financial statement misstatements aggregated by you are immaterial.
• We have disclosed all liabilities, both actual and contingent.
• There are no violations or possible violations of laws or regulations whose effects should be considered.

We confirm that the representations we have made to you during your audit are complete, truthful, and accurate.

Sincerely, [Signature] [Client Representative Name and Title]

What is the difference between management letter and management representation letter?

The key differences between a management letter and a management representation letter in an audit are:

Focus : The management letter focuses on identifying weaknesses and areas of improvement in the company's financial reporting process and internal controls. Management representation, on the other hand, focuses on providing evidence of management's understanding and support of the audit process.

Purpose : The purpose of a management letter is to communicate deficiencies in internal control and make suggestions for improvements. The purpose of a management representation letter is to confirm certain information that the auditors have requested from management.

Content : A management letter contains comments and recommendations from the auditor about issues encountered during the audit. A management representation letter contains specific statements by management regarding matters such as the fairness of financial statements.

Timing : A management letter is typically issued after the audit report while a management representation letter is obtained during the audit.

In summary, while both letters relate to the audit process, the management letter aims to provide suggestions for improvement while the management representation letter serves as audit evidence regarding management's assertions. The management representation letter supports the audit by confirming the accuracy of the financial statements.

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The purpose and importance of management representation letters.

Management representation letters serve several key purposes in the audit process. Most importantly, they provide additional audit evidence to support the auditor's opinion on the financial statements.

Reinforcing the Auditor's Collection of Audit Evidences

Management representation letters reinforce the audit evidence the auditor has already obtained throughout the audit. As outlined in ISA 500 Audit Evidence, auditors must obtain sufficient appropriate evidence to support their opinion. The letter serves as written representation from management on important assertions related to the financial statements. This includes the completeness and accuracy of information provided to the auditor.

Management's Accountability for Financial Reporting

Additionally, the letter highlights management's responsibilities over financial reporting. Management, not the auditor, is responsible for the preparation and fair presentation of the financial statements. The representation letter formally documents that management has fulfilled these duties, a key assertion needed to issue an audit opinion.

Assurance on Contingent and Off-Balance-Sheet Liabilities

Auditors also rely on management's representations on significant estimates and disclosures. This includes assurance from management that the financial statements appropriately reflect contingent liabilities and off-balance-sheet liabilities in accordance with the applicable financial reporting framework.

In summary, representation letters serve as a final confirmation from management that they have fulfilled their financial reporting responsibilities. The letters provide key audit evidence and accountability to support the auditor's work in accordance with auditing standards.

Drafting a Management Representation Letter: Best Practices

A management representation letter is an important part of the audit process. It documents certain written representations made by management to the auditors regarding the company's financial statements.

Drafting an effective management representation letter requires following several best practices:

Management Representation Letter Template: A Starting Point

When creating a management representation letter, it's best to start with a template. This ensures all relevant topics are covered such as:

• Management's responsibility for the preparation and fair presentation of the financial statements
• Availability of all financial records and related data
• Completeness of information provided regarding transactions and events
• Disclosure of all liabilities, both actual and contingent
• Non-existence of any fraud or illegal acts

Tailor the template to the specific circumstances and transactions of the business. But the template establishes a solid foundation.

Who Should Sign the Management Representation Letter

Typically the management representation letter should be signed by:

• The CEO or Managing Director
• The CFO or Financial Controller

This demonstrates the company's overall governance has reviewed the representations and attests to their validity and completeness.

In some cases, representation from heads of divisions or departments may also be necessary regarding transactions or activities under their specific purview.

Customizing Representations to Reflect Unique Organizational Circumstances

While a template is useful, each management representation letter must be customized to reflect the distinct transactions and activities of the organization. Specifically call out areas the auditors have highlighted as potential risks or requiring further representations.

For example, if the company underwent a major acquisition, restructuring, or system implementation, representations would be needed to address the associated impacts and risks regarding financial reporting.

The management representation letter is not a mere formality. It serves as an indispensable record of the critical dialogue between management and auditors. Following these best practices helps craft letters that clearly communicate important representations.

Management Representation Letter Samples and Examples

Management representation letters are important documents in the financial audit process. They contain written confirmation from management about the accuracy and completeness of financial statements and disclosures. Reviewing examples can help companies understand what to include in their own letters.

Analyzing a Management Representation Letter Sample

Here is an excerpt from a sample management representation letter:

We acknowledge our responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). We have provided you with unrestricted access to persons within the Company...

This excerpt demonstrates several key elements:

• Acknowledgment of management's responsibility for financial statements conforming to GAAP
• Confirmation that auditors had full access to people and information

Other standard inclusions are statements around contingent liabilities, litigation matters, plans or intentions that may affect assets or liabilities, and confirmation that appropriate disclosures have been made.

Analyzing examples helps identify customary terms to include.

Management Representation Letter PDF: Accessibility and Format

Management representation letters are often provided to auditors as PDF files. This locked, uneditable format:

• Facilitates easy sharing of the definitive final version
• Allows clear version control with digital signatures
• Enables reliable long-term archival storage

PDF format removes ambiguity around which representation letter version was relied upon.

Real-World Examples: Complex Issues

Consider these excerpts from real-world representation letters:

"The restructuring provision of $20 million represents our best estimate of costs to complete the plant closure based on current plans..."

"We confirm that we have properly recorded and disclosed the acquisition of Company XYZ in the financial statements..."

These excerpts demonstrate how companies transparently address complex real situations like restructurings or major transactions in the representation letter.

Real examples provide assurance that the company has appropriately considered complex accounting matters.

Comparing Management Letters and Management Representation Letters

Management letters and management representation letters serve important but distinct purposes in the audit process.

Management Letter vs Management Representation Letter: Clarifying the Distinction

A management letter communicates deficiencies or recommendations for improvement identified by the auditor during the audit. These may relate to internal controls, processes, or compliance issues that could be made more effective.

In contrast, a management representation letter obtained near the end of an audit contains specific written representations from management about the accuracy and completeness of the financial statements and disclosures. Common representations confirm that:

• Financial statements are fairly presented
• Significant assumptions used by management are reasonable
• All relevant information has been provided to the auditor
• There are no undisclosed side agreements or contingencies

While management letters offer suggestions, representation letters confirm critical facts underlying the audit.

The Role of the Auditor in Relation to Management Representations

Auditors use both tools to fulfill their responsibilities:

Management letters reflect the auditor's duty to communicate control deficiencies to those charged with governance. This allows the entity to take timely remedial action.

Representation letters provide audit evidence as part of the auditor's risk assessment procedures under auditing standards. They represent a form of documentary evidence about management's intents, knowledge and accuracy of the financial statements.

If management were unwilling to sign the representation letter, the auditor would need to reconsider their audit opinion.

Impact on Audit Opinions and Auditor's Reports

The management letter has no direct bearing on the auditor's opinion, unless the issues it raises cast doubt on the fairness of the financial statements.

However, matters raised in the representation letter directly relate to the audit evidence obtained. If management refuses to sign the letter, the auditor would likely issue a qualified opinion or disclaimer of opinion on the financial statements due to the limitation on audit scope and evidence.

In summary, while management letters offer helpful recommendations, representation letters provide the auditor written confirmation of critical information pertinent to the audit itself. Both play key roles in the audit process.

International Standards on Auditing: ISA 580 Management Representations

The International Standards on Auditing (ISA) provide a framework for conducting high quality external audits. ISA 580 specifically focuses on obtaining appropriate written representations from management to support the audit evidence gathered.

Understanding ISA 580 and Its Relevance to Management Representation Letters

ISA 580 outlines the auditor's responsibilities for obtaining written representations from management to confirm certain matters or to support other audit evidence. Some key points:

• Requires auditors to obtain written representations from management that they have fulfilled their financial reporting responsibilities
• Covers areas like recognition, measurement, presentation, and disclosure of information as per the financial reporting framework
• Helps auditors obtain confirmation on matters material to the financial statements, like the completeness of information provided
• Allows for detection of material misstatements due to fraud

By adhering to ISA 580, auditors can ensure management representation letters align with the necessary audit evidence requirements.

Compliance with International Standards on Auditing

It is critical that management representation letters comply with ISA guidelines, including:

• Obtaining representations from appropriate individuals : Those with overall responsibility for financial reporting, such as the CEO and CFO
• Written format : Printed on the organization's letterhead and signed by hand
• Date : No earlier than the date of the audit report
• Wording : Clear acknowledgement of responsibilities, accuracy of information provided, etc.

Strict compliance ensures the representations constitute valid and appropriate audit evidence as per ISA 500.

Case Studies: Adherence to ISA 580 in Practice

Company A - Drafted a management representation letter that was vague, unsigned, and outdated. By not adhering to ISA 580, they had to invest additional time and resources to obtain proper representations.

Company B - Carefully followed ISA 580 requirements. The CFO and CEO signed off on a letter confirming completeness of information and awareness of responsibilities. This aligned smoothly with the audit process.

As exemplified, non-compliance ultimately wastes time and resources. Whereas alignment with ISA 580 standards helps streamline external audits.

Conclusion and Key Takeaways

Management representation letters are important, standard audit evidence that reduce risk. They signify management's representations concerning the financial statements and accountability for internal controls, fraud, and information provided to auditors.

Summarizing the Role of Management Representation Letters in Audits

Management representation letters summarize key information and representations from management to auditors. They serve several key functions:

• Confirm management's responsibility for the preparation and fair presentation of the financial statements
• Disclose any issues or deficiencies in internal controls
• Affirm that all relevant information has been provided to auditors
• Highlight any fraud, illegal acts, or noncompliance with laws and regulations

By obtaining these written representations, auditors reduce engagement risk and confirm their understanding of management's views and positions.

Final Thoughts on Best Practices and Compliance

It is critical that management representation letters adhere to regulations and professional standards. Key best practices include:

• Ensuring the letter is dated as of the date of the auditor's report
• Having the letter signed by those with appropriate responsibilities and authority
• Disclosing all relevant issues completely and accurately
• Following the guidelines and requirements outlined in ISA 580 and other applicable standards

Diligent compliance promotes accuracy, transparency, and accountability.

Encouraging Diligence and Transparency in Financial Reporting

At their core, management representation letters aim to foster diligent, truthful, and transparent financial reporting. By eliciting key written representations from management, auditors promote an environment of responsibility, compliance, and ethical practice. This ultimately supports the accuracy and reliability of financial statements for all stakeholders.

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Appendix II: Illustrative Management Representation Letter ​

The following illustrative letter includes written representations that are required by this Implementation Guide, SA 580, “Written Representations” and other Standards on Auditing as applicable. It is assumed in this illustration that the relevant accounting software meets the essential characteristics as specified by the Account Rules; and that there are no exceptions to the requested written representations. If there are exceptions, the representations would need to be modified to reflect the exceptions.

(Entity Letterhead)

(To Auditor) (Date)

This representation letter is provided in conjunction with your audit of the standalone/ consolidated financial statements of the Company for the year ended March 31, 20XX, for the purpose of reporting as to whether the accounting software used by the Company for maintaining its books of account, has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

We confirm that to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves:

We are responsible for establishing and maintaining adequate and effective controls based on [mention control criteria] in respect of use of accounting software that entails the requisite features as specified by Account Rules.

We have performed an evaluation and made an assessment of the adequacy and effectiveness of the company's accounting software in term of recording audit trail of each and every transaction.

We have not used the procedures performed by you during the audit as part of the basis for our assessment of the effectiveness of audit trails of accounting software.

Based on the assessment carried out by us and the evaluation of the results of the assessment, we conclude that the Company uses accounting software for maintaining its books of account which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled and the audit trail been preserved by the company as per the statutory requirements for record retention except for the below mentioned exceptions noted during our assessment and evaluation.

a. (brief of deficiencies)

b. (brief of the impact)

We have disclosed to you all deficiencies identified as part of management's evaluation, including separately disclosing to you all such deficiencies that we believe to be significant deficiencies or would lead to material weaknesses in internal financial controls.

There were no instances of fraud resulting in a material misstatement to the company's financial statements and any other fraud that does not result in a material misstatement to the company's financial statements but involves senior management or management or other employees who have a significant role in the company's internal financial controls. (or) The following instances of fraud that resulted in material misstatement of financial statements in earlier years and frauds involving senior management or management or other employees who have a significant role in the company's internal financial controls were noted: (list instances and amounts involved).

The deficiencies identified in the previous engagement and communicated to the Company and those charged with governance have been remediated, except for the following: (…………) (This issue is not applicable in the first year)

There have been no communications from regulatory agencies concerning non-compliance with or deficiencies in accounting software.

We have provided you with:

All information, such as records (including SOC report) and documentation, and other matters that are relevant to your assessment of accounting software;

Additional information that you have requested from us;

Unrestricted access to those within the entity.

Audit reports of the component auditors, including their report under Section 143(3)(i) of the Act for the following subsidiary companies, jointly controlled companies and associate companies to whom reporting under Section 143(3)(i) is applicable.

There are no other subsidiary companies, jointly controlled companies and associate companies of the company to whom reporting under Section 143(3)(i) is applicable and whose auditors have not issued their report under Section 143(3)(i) of the Act.

In the case of the following subsidiary companies, jointly controlled companies and associate companies of the company to whom reporting under Section 143(3)(i) is applicable, the respective component’s year end is other than that of the Company:

With respect to these components, we have provided to you the audit reports of the component auditors, including their report under Section 143(3)(i) of the Act for their respective financial year under the Act that has been considered in the preparation of the consolidated financial statements of the Company.

There are no changes in the accounting software from March 31, 20XX [balance sheet date] till the date of this representation letter. (or) The following changes have been made to the accounting software since March 31, 20XX [balance sheet date] and the date of this letter: (list changes and reason for the change).

These changes include corrective actions taken by us with regard to significant deficiencies with respect to the following: (list significant deficiencies).

The following changes to accounting software have been proposed as on date of this representation letter but have not yet been implemented: (list proposed changes and reason for the proposed change).

The changes to the accounting software since March 31, 20XX [balance sheet date] and the proposed changes that are under consideration by the Company do not impact our assessment, evaluation and conclusion of the accounting software as at March 31, 20XX [balance sheet date]

[Any other matters that the auditor may consider appropriate.]

For and on behalf of ABC Company Limited

__ (Signature) Name and Designation

15+ Examples | Representation Letter Format, Wording Ideas

• Letter Format
• March 14, 2024
• Office Letters , Request Letters

Representation Letter Format: A representation letter format is a document that is prepared by an individual or organization and sent to another party . It is a written statement that provides assurance to the recipient that certain facts are true and accurate . This article will discuss the representation letter format and its importance.

• Office Address Change Letter to employee Format
• Office Rental Agreement Letter Format
• Work From Home Request Letter Format
• Bonus Request Letter Format 

A representation Office letter format is a written statement or document that a company’s management or board of directors provides to their external auditors to confirm the accuracy and completeness of the information they have presented to them. The representation letter format serves as a crucial component of an audit and is often requested by the auditors as part of their audit procedures .

Representation Letter Format Writing Tips

Content in this article

The representation letter format is a formal document that follows a specific format to ensure that all necessary information is included. The format of the Request letter typically consists of several sections, each addressing a different aspect of the audit. The following is a general outline of the standard representation letter format:

The format of a representation letter format typically includes the following:

• Header: The Request letter should start with a header that includes the date, recipient’s name, and address.
• Introduction: The first paragraph of the letter should introduce the purpose of the letter and the relationship between the sender and the recipient.
• Scope: The second paragraph of the letter should define the scope of the representation. This may include the time period covered by the representation, the specific areas that will be covered, and any limitations that may apply.
• Representation: The third paragraph of the letter should provide a representation statement. This statement should indicate that the information provided is true and accurate to the best of the sender’s knowledge.
• Signature: The letter should end with the sender’s signature, printed name, and contact information.

The representation letter format is important because it provides assurance to the recipient that the information provided is accurate and complete. It can be used in a variety of situations, such as during an audit, as part of a due diligence review, or in a legal proceeding .

The Representation Letter Format can also be used to limit the liability of the sender . By providing a representation statement, the sender is indicating that they have done their due diligence and that the information provided is accurate. If it later turns out that the information was not accurate, the sender may be able to use the representation letter as a defense.

Representation Letter Format – Sample Format

Below is a Sample Format of Representation Letter Format:

[Your Name]

[Your Title/Position]

[Your Company Name]

[Company Address]

[City, State, Zip Code]

[Recipient’s Name]

[Recipient’s Title/Position]

[Recipient’s Company Name]

Subject: Representation Letter

Dear [Recipient’s Name],

I am writing this letter on behalf of [Your Company Name] to officially confirm certain representations made during our discussions/negotiations/meetings related to [Specify the context of representations, e.g., a business transaction, partnership, agreement, etc.].

Details of Representations: [List the specific representations made, ensuring clarity and accuracy. Include relevant dates, figures, and terms.]

[Provide additional details or explanations as necessary.]

Confirmation of Accuracy: I hereby confirm that, to the best of my knowledge, the representations mentioned above are accurate and complete. I acknowledge the importance of these representations in the context of our [transaction/agreement/partnership], and I assure you that [Your Company Name] is committed to fulfilling these representations as agreed.

Additional Information (if applicable): [Include any additional information, disclosures, or conditions relevant to the representations.]

Request for Confirmation: Kindly confirm your understanding and acceptance of these representations by signing and returning a copy of this letter at your earliest convenience.

Thank you for your attention to this matter. I look forward to our continued collaboration and the successful realization of our mutual goals.

[Your Contact Information]

Representation Letter Format – Example

Here’s an Example of Representation Letter Format:

I am writing this letter on behalf of XYZ Corporation to officially confirm certain representations made during our recent negotiations for the acquisition of ABC Company. This letter serves as a formal documentation of the representations and commitments made during the discussions.

Details of Representations:

• Financial Statements: The financial statements provided accurately represent the financial condition of ABC Company as of [specific date], including all assets, liabilities, and financial performance metrics.
• Pending Litigation: As of the representation date, ABC Company is not involved in any pending litigation, and there are no legal proceedings or disputes that could materially impact its business operations.
• Contracts and Agreements: All material contracts and agreements disclosed during the negotiations are accurate and complete, and ABC Company is in compliance with the terms of these contracts.

Confirmation of Accuracy:

I hereby confirm that the representations mentioned above are accurate and complete based on the information available to us as of [specific date]. XYZ Corporation is committed to ensuring that these representations remain accurate up to the closing date of the acquisition.

Request for Confirmation:

Please confirm your understanding and acceptance of these representations by signing and returning a copy of this letter at your earliest convenience. If there are any discrepancies or additional information that needs to be considered, kindly inform us promptly.

Thank you for your attention to this matter. We believe that a transparent and accurate representation of the relevant information is crucial for the success of our upcoming acquisition.

Representation Letter Format for Financial Statements

Here’s a Representation Letter Format For Financial Statements:

[Company Letterhead]

[External Auditor’s Name] [External Auditor’s Address]

Dear [Auditor’s Name],

We confirm that we have provided you with all necessary information regarding the financial statements of [Company Name] for the year ended [Date]. We also confirm that the information we have provided is complete, accurate, and in accordance with Generally Accepted Accounting Principles (GAAP).

In connection with your audit, we make the following representations:

All financial records and related data have been made available to you for examination and inquiry.

All transactions have been recorded in the financial statements and are reflected in the appropriate accounts.

The financial statements fairly present, in all material respects, the financial position of the company as of [Date] and the results of its operations and cash flows for the year then ended.

We have disclosed all material information regarding contingent liabilities and commitments that may affect the financial position of the company.

We have identified and disclosed to you all related-party transactions and arrangements.

We confirm that there are no other material transactions, arrangements, or events that have not been properly disclosed to you.

We acknowledge that we are responsible for the preparation and fair presentation of the financial statements in accordance with GAAP. We further acknowledge our responsibility for designing, implementing, and maintaining effective internal control over financial reporting, and that we have disclosed to you any significant deficiencies or material weaknesses identified during our assessment of internal control.

Please let us know if you require any further information or clarification.

[Authorized Company Representative’s Name and Signature]

Representation letter format for partnership agreement

A formal representation letter confirming accuracy in key aspects of a partnership agreement, emphasizing commitment to fulfill obligations and ensure a successful partnership.

[Partner’s Name]

[Partner’s Title/Position]

[Partner’s Company Name]

Subject: Representation Letter for Partnership Agreement

Dear [Partner’s Name],

I, [Your Name], in my capacity as [Your Title/Position] of [Your Company Name], hereby provide this representation letter to confirm the accuracy and completeness of certain information in relation to the partnership agreement between [Your Company Name] and [Partner’s Company Name].

• Financial Information: The financial statements provided by [Your Company Name] accurately reflect its financial position, including assets, liabilities, and financial performance, as of [specific date].
• Legal Compliance: [Your Company Name] is in compliance with all applicable laws and regulations relevant to the proposed partnership agreement.
• Contractual Agreements: All material contracts and agreements entered into by [Your Company Name] have been disclosed and are accurate and complete.
• Business Operations: [Your Company Name] operates its business in accordance with industry best practices and ethical standards.

Confirmation of Accuracy: I confirm that, to the best of my knowledge and belief, the representations mentioned above are accurate and complete. I understand the importance of these representations in the context of our partnership agreement, and I assure you that [Your Company Name] is committed to fulfilling these representations as agreed.

Additional Information (if applicable): [Include any additional information or disclosures relevant to the partnership agreement.]

Thank you for your attention to this matter. We look forward to a successful and collaborative partnership between [Your Company Name] and [Partner’s Company Name].

Representation Letter Format for Partnership Agreement

Representation Letter format – Template

Here’s a Template of Representation Letter format:

I, [Your Name], in my capacity as [Your Title/Position] of [Your Company Name], am writing to confirm certain representations made during our recent discussions/negotiations/meetings pertaining to [Specify the context of representations, e.g., a business transaction, partnership, agreement, etc.].

Corporate representation letter format

A formal corporate representation letter confirming accuracy and completeness of information, typically used to assure external parties regarding key aspects of the company’s affairs.

Subject: Corporate Representation Letter

I, [Your Name], in my capacity as [Your Title/Position] of [Your Company Name], hereby provide this representation letter to confirm the accuracy and completeness of certain information pertaining to our corporate representation.

• Financial Information: The financial statements of [Your Company Name] accurately present its financial position, including assets, liabilities, and financial performance, as of [specific date].
• Legal Compliance: [Your Company Name] is in compliance with all applicable laws and regulations relevant to our business operations.
• Business Operations: [Your Company Name] conducts its business in adherence to industry best practices and ethical standards.

Confirmation of Accuracy: I confirm that, to the best of my knowledge and belief, the representations mentioned above are accurate and complete. I understand the importance of these representations in the context of our corporate dealings, and I assure you that [Your Company Name] is committed to fulfilling these representations as agreed.

Additional Information (if applicable): [Include any additional information or disclosures relevant to our corporate representation.]

Thank you for your attention to this matter. We look forward to continued positive and transparent corporate interactions between [Your Company Name] and [Recipient’s Company Name].

Corporate Representation Letter Format

Legal representation letter format

A concise legal representation letter confirming legal aspects of a specific matter, ensuring compliance, validity, and confidentiality, and seeking recipient confirmation.

[Your Company or Law Firm Name]

[Company or Law Firm Address]

[Recipient’s Company Name or Address]

Subject: Legal Representation Letter

I, [Your Name], in my capacity as [Your Title/Position] at [Your Company or Law Firm Name], am writing to confirm and represent the legal aspects pertaining to [specific matter or transaction].

• Legal Compliance: [Your Company or Client] is in compliance with all relevant laws and regulations concerning the aforementioned matter.
• Contractual Agreements: All legal agreements, contracts, and documents associated with this matter are accurate, valid, and executed in accordance with the applicable legal requirements.
• Litigation and Disputes: There are no pending or threatened legal actions, disputes, or litigations that could adversely impact [Your Company or Client].
• Confidentiality and Compliance: We assure compliance with confidentiality agreements and legal requirements related to sensitive information.

Confirmation of Accuracy: I confirm that the representations made above are accurate and complete based on the legal information available to us as of [specific date]. [Your Company or Client] is committed to maintaining legal integrity in all aspects of the matter.

Request for Confirmation: Kindly acknowledge your understanding and acceptance of these legal representations by signing and returning a copy of this letter at your earliest convenience.

Thank you for entrusting us with your legal matters. We look forward to continued collaboration.

[Your Company or Law Firm Contact Information]

Legal Representation Letter Format

formal Representation Letter format

A formal representation letter affirming key details, ensuring accuracy, and seeking recipient acknowledgment in a concise and professional manner.

[Your Company Name or Law Firm Name] [Company or Law Firm Address]

Subject: Formal Representation Letter

I, [Your Name], in my capacity as [Your Title/Position] at [Your Company or Law Firm Name], am writing to formally represent and confirm certain matters related to [specific context, such as a transaction, agreement, or legal issue].

• [Representation 1]: [Provide details and context for the first representation.]
• [Representation 2]: [Provide details and context for the second representation.]
• [Representation 3]: [Provide details and context for the third representation.]

Confirmation of Accuracy: I confirm that the representations made above are accurate and complete based on the information available to us as of [specific date]. [Your Company or Client] is committed to upholding these representations throughout the course of [transaction, agreement, legal matter, etc.].

Additional Information (if applicable): [Include any relevant additional information, disclosures, or conditions.]

Request for Confirmation: Kindly confirm your understanding and acceptance of these representations by signing and returning a copy of this formal letter at your earliest convenience.

Thank you for your attention to this matter. We value our professional relationship and are dedicated to ensuring the integrity of the representations made.

Formal Representation Letter Format

Email Format about Representation Letter format

Here’s an Email Format for Representation Letter Format:

Subject: Request for Representation Letter

Dear [Company Representative],

I hope this email finds you well. As part of our audit procedures, we are requesting a representation letter from [Company Name] to confirm the accuracy and completeness of the financial statements for the year ended [Date].

We kindly request that you provide us with a representation letter in accordance with our standard format, which includes the following sections:

Introductory Paragraph: This section should identify the company’s name, the date of the letter, and the purpose of the letter, which is to provide representations to the auditors.

Scope of Audit: This section outlines the scope of the audit, including the period covered, the financial statements being audited, and any specific areas of focus.

Representations: This section includes a list of representations that management or the board of directors are providing to the auditors. These representations typically include assertions related to the completeness and accuracy of financial statements, disclosures, and other relevant information.

Qualifications and Limitations: This section outlines any qualifications or limitations to the representations being made. For example, the company may note that they are only providing representations to the best of their knowledge and that certain information may not be known with certainty.

Signature and Date: The letter must be signed by an appropriate representative of the company, such as the CEO or CFO, and dated to indicate when the representations were made.

We would appreciate it if you could provide the representation letter as soon as possible to ensure that we can complete our audit within the necessary timeframe.

Please let us know if you have any questions or require any further information.

Thank you for your cooperation.

[Auditor’s Name]

Email Format about Representation Letter Format

Representation Letter Format for Compliance Audit

Here’s a Representation Letter Format For Compliance Audit:

We confirm that we have provided you with all necessary information regarding our compliance with [applicable laws, regulations, or standards] for the period ended [Date]. We also confirm that the information we have provided is complete, accurate, and in accordance with the requirements of [applicable laws, regulations, or standards].

We have complied with all applicable laws, regulations, or standards that may have a material effect on our operations.

We have identified and disclosed to you any noncompliance issues that we have become aware of.

We have disclosed all material information related to our compliance with [applicable laws, regulations, or standards].

We confirm that there are no other material noncompliance issues that have not been properly disclosed to you.

We acknowledge that we are responsible for complying with all applicable laws, regulations, or standards and that we are responsible for implementing and maintaining effective compliance programs to ensure compliance with these requirements.

Representation letter format for due diligence

A concise representation letter for due diligence, ensuring accuracy and transparency in key details, vital for a thorough understanding during the due diligence process.

Subject: Representation Letter for Due Diligence

I, [Your Name], in my capacity as [Your Title/Position] at [Your Company or Law Firm Name], am writing to provide representations and confirmations related to the due diligence process conducted on behalf of [Your Company or Client] for the purpose of [specific context].

Confirmation of Accuracy: I confirm that the representations made above are accurate and complete based on the information available to us as of [specific date]. These representations are made in connection with the due diligence process and are intended to provide a comprehensive understanding of [Your Company or Client]’s affairs.

Request for Confirmation: Kindly confirm your understanding and acceptance of these representations by signing and returning a copy of this letter at your earliest convenience. This confirmation is essential for the due diligence process.

Thank you for your cooperation and understanding. We look forward to a successful completion of the due diligence process.

Representation Letter Format for Due Diligence

FAQS for Representation Letter Format

What is the purpose of a representation letter format in a business transaction.

A Representation Letter Format is used to confirm the accuracy and completeness of certain information or statements made during a business transaction, partnership, or agreement.

Are Representation Letter Format legally binding documents?

Representation Letter Format is typically considered legally binding to the extent that they reflect the true and accurate information at the time they are issued. However, the legal implications may vary depending on jurisdiction and the specific terms outlined in the letter.

What should be included in a Representation Letter Format for due diligence?

A Representation Letter Format for due diligence should include specific details about the accuracy and completeness of information relevant to the due diligence process. This may include financial statements, legal compliance, and any other key aspects of the business.

How can one ensure the effectiveness of a Representation Letter Format?

To ensure the effectiveness of a Representation Letter Format, it should be clear, specific, and address all relevant aspects of the transaction or agreement. It’s important to use precise language and ensure that the letter is tailored to the specific context.

Is it necessary to involve legal professionals in drafting a Representation Letter Format?

In complex transactions or legal matters, involving legal professionals in drafting a Representation Letter Format is advisable. They can ensure that the letter complies with legal standards and adequately protects the interests of the parties involved.

Can a Representation Letter Format be used in mergers and acquisitions?

Yes, Representation Letter Format is commonly used in mergers and acquisitions to confirm the accuracy of financial statements, compliance with laws, and other key representations that impact the transaction.

Is a Representation Letter Format one-sided, or do both parties typically provide one?

In some cases, both parties involved in a transaction may provide Representation Letter Format. This ensures a mutual understanding and acknowledgment of the accuracy of the information exchanged between them.

The representation letter format is a standard format that is used to provide assurance that information is accurate and complete . It is an important document that can be used in a variety of situations, and it can help to limit liability for the sender . If you need to prepare a representation letter, it is important to follow the standard format and to be as thorough as possible in your representation statement.

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What is a Representation Letter?

An auditor’s responsibility is to gather audit evidence regarding a subject matter. This evidence comes from several audit procedures. Based on this evidence, the auditor must conclude whether the subject matter meets specific criteria. In the case of external audits , it includes examining a client’s financial statements to establish whether they are free from material misstatements.

A representation letter is a form of written representation obtain from a client. Written representations are audit evidence that auditors collect. Similarly, they are necessary information that auditors may require related to a specific audit assignment. These are similar to audit inquiries but in a written form. The international auditing standard that deals with written representations are ISA 580 Written Representations.

Once presented to the management, a senior official will sign the representation letter. Usually, a client’s CEO, CFO, or other higher senior accounting personnel sign the letter. This process must take place before auditors present an audit report regarding the client’s financial statements. The content of the representation letter may vary from one firm to another. However, there are some similar elements or contents that are present in every representation letter.

What are the Contents of the Representation Letter?

1. The management is responsible for the proper presentation and accurate preparation of the financial statements. It will also include a reference to the applicable accounting framework for this purpose. 2. The auditors have received all the financial records related to the audit. 3. The board of directors meeting minutes are complete. 4. There are no unrecorded transactions. 5. The management has disclosed all related party transactions. 6. The management has provided all letters from regulatory agencies regarding financial reporting noncompliance if required. 7. The net effect of all uncorrected misstatements is immaterial. 8. The financial statements conform to the applicable accounting standards. 9. The management doesn’t have any knowledge of fraud within the company. 10. The financial statements account for all material transactions. 11. The management is responsible for systems designed to detect and prevent fraud. 12. The client has disclosed all liens and other encumbrances on its assets. 13. The management has disclosed all contingent liabilities. 14. The management acknowledges its responsibility for the system of financial controls. 15. The client has disclosed all unasserted claims or assessments.

Overall, the representation letter will consist of all the management’s responsibilities for the financial statements and the audit. This letter will decrease the auditors’ responsibility if there is a future dispute. Similarly, it places responsibility on the management for areas where it must ensure proper accounting and controls. Auditors will not allow the management to make changes to the representation letter before signing.

What Happens If Auditors Cannot Obtain Reliable Representation Letters?

If auditors conclude that the representation letter is not reliable, they must take appropriate actions. These may include establishing the possible effect on the opinion in the auditor’s report. The same cases will apply when the management refuses to provide a representation letter. The auditor must discuss it with the management before taking any actions.

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Home » Blog » Illustrative Management Representation Letter (MRL) for Tax Audit

Illustrative Management Representation Letter (MRL) for Tax Audit

• Blog | Account & Audit |
• Last Updated on 20 September, 2023

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_____________________

Chartered Accountants

Address: ____________

(Date: ______________)

Sub: Representation from Management for the purpose of Tax Audit under section 44AB of the Income Tax Act, 1961 (The “Act”) for the year ended on 31st March, 20XX.

Respected Sir/ Madam,

This representation letter is provided in connection with the tax audit u/s 44AB of the Income Tax Act of _______________ for the year ended 31st March, 20XX for the purpose of expressing an opinion as to whether the Form 3CD along with the annexure thereto gives a true and correct view of the facts mentioned therein. We acknowledge our responsibility to keep and maintain such books of account and other documents as may enable tax auditor to complete tax audit u/s 44AB, in accordance with the provisions of the Income Tax Act, 1961

We confirm the following representations to the best of our knowledge and belief:

1. The name of the assessee as per PAN card is __________. A copy of PAN Card has been attached herewith.

2. The assessee has no other business address than communicated to the Income-tax Department for assessment purposes.

3. The Assessee has employed the cash/mercantile system of accounting during the year.

4. There has been a change in the method of accounting employed in the previous year as compared to that employed in the immediately preceding financial year i.e. F.Y. 20XX-XX. The effect of the same on profit is as follows:

The assessee is liable/not liable to pay indirect taxes & if yes, for that registration number is as follows:

(a) Service Tax: _________________

(b) VAT: _________________

(c) Excise: _________________

(d) Import Export Code: _________________

(e) GST: _________________

Copy of the Registration Certificates (RCs) has been attached herewith.

5. The Assessee has not opted to be assessed under any of the 115BA/115BAA/115BAB/115BAC/115BAD.

6. We confirm that the profit and loss account does not include any profits and gains assessable on a presumptive basis under relevant sections 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section

7. The Assessee is engaged in the business as reported in clause 10(a) of Form 3CD.

8. The Assessee has disclosed the nature of every business carried on by it and there is no change in the nature of business carried in the previous year from the earlier years.

9. The Assessee has maintained books of accounts in the “ERP” based computer system in accordance with the generally accepted accounting principle and the following books are generated by the computer systems:-

(a) Cash Book

(b) Bank Book

(d) Journal

10. The above books and accounts have been maintained and kept as per the addresses mentioned in clause 11(b) of Form 3CD.

11. The following are the members/partners of the firm & their profit-sharing ratio is as follow:

12. There are no items of the following nature which are not credited to the profit and loss account where applicable:

(a) items falling under the scope of Section 28 of the Act;

(b) the performa credits, drawbacks, refund of duty or customs or excise or service-tax or refund due by the authorities concerned;

(c) escalation claims accepted during the previous year;

(d) any other item of income; and

(e) capital receipts.

13. During the Previous Year, the assessee has not transferred any land or building for a consideration less than the value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C.

14. The Assessee has disclosed ICDS as required by the disclosure norms mentioned as per section 145(2) of the Income Tax Act, along with any adjustment in clause 13(e) of Form 3CD.

15. Adjustments is required to be made to the profits or loss to comply with the provisions of ICDS. The effects of such adjustments are as follow:

16. The Closing stock in respect of Raw Material, Work In Progress, and Finished Goods are valued at cost or Net Realizable Value (NRV) whichever is less. The assessee has changed/not changed its accounting policy regarding the valuation of inventories during the previous year. The change of accounting policy has resulted in an increase/decrease in profit by Rs. ____________ in the previous year 20XX-XX.

17. The particulars disclosed in respect of depreciation allowable as per the Income Tax Act, 1961 in respect of each asset or block of assets, as the case may be as required under clause 18 of Form No. 3CD are correct.

18. There are no amounts admissible under sections 32AC, 32AD, 33AB, 33ABA, 33AC (wherever applicable), 35(1), 35(2AB), 35ABB, 35AC, 35CCA, 35CCB, 35CCC, 35CCD, 35D, 35DD and 35E which are debited/not debited to the profit and loss account.

19. The Assessee has not paid any sum to an employee as bonus or commission for services rendered, where such sum was otherwise payable to him as profits or dividend.

20. The sums received from employees towards contributions to any provident fund or superannuation fund or any other fund mentioned u/s 2(24) (x) and the due date of payments and the actual date of payments to the concerned authorities u/s 36(1) (va) as disclosed against clause 20(b) of form 3CD are correct.

21. The assessee has not debited any expense being in the nature of Capital Expenditure to Profit and Loss Account.

22. We certify that there are no capital assets which are converted into stock in trade

23. The assessee has not debited any expense being in the nature of Personal Expenditure to Profit and Loss Account.

24. The Assessee had not released any advertisement in any souvenir, brochure, tract, pamphlet or the like, published by any political party.

25. The Assessee had not made any payments to club as entrance fees, subscriptions and for club services and facilities used.

26. The Assessee had not incurred any expenditure by way of penalty or fine for violation of any law and no expenditure was incurred for any purpose which is an offence or which is prohibited by law except a sum of Rs. ________ as interest on late deposit of TDS under section 201(1A) and Interest on Income Tax under section 206C(7) which is duly reported in clause 34(c) of Form 3CD.

27. The Assessee had not incurred any expenditure by way of any other penalty or fine.

28. There are no amounts inadmissible u/s 40(a) of the Act except Rs. __________ being the amount paid to a resident on which tax is not deducted. Refer clause 21(b)(ii)(A) of Form 3CD.

29. As certified, in relation to any expenditure covered u/s 40A (3), all payments were made by an account payee Cheque drawn on a bank or account payee bank draft. That all payments exceeding Rs. 10,000 have been made either by an account payee Cheque drawn on a bank or account payee bank draft or by electronic clearing system.

30. The Assessee has paid no sums, which are disallowed u/s 40A (9).

31. The Assessee has not debited any item of a contingent nature to the profit and loss account.

32. The deduction u/s 14A amounting to Rs. ___________ in respect of expenditure incurred in relation to income which does not form part of the total income is correct.

33. The Assessee does not have any amount of interest paid that is inadmissible under the provision to section 36 (1) (iii) of the Act.

34. Particulars of payments made to persons specified under section 40A(2)(b) as mentioned in clause 23 of Form 3CD are correct.

35. There is no amount of profit chargeable to tax u/s 41 of the Act.

36. That during the previous year the assessee has not received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia) except reported under clause 28 of Form 3CD.

37. There are no other income during the previous year that the assessee received by way of consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib)/(ix)/(x) except for clause 29 of Form 3CD.

38. There are no sums referred to under clauses (a), (b), (c), (d), or (e) of section 43B, the liability for which pre-existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year except those disclosed against clause 26(A) of form 3CD. The amount of expenditure incurred during the previous year, paid on or before filing of return u/s 139(1) is duly reported in clause 26(B)(a) and not paid on or before the aforesaid date under clause 26(B)(b) of Form 3 CD.

39. The amount of Central Value Added Tax Credits/Input Tax Credit (ITC) availed of or utilised during the previous year and its treatment in profit and loss account and treatment of outstanding Central Value Added Tax Credits/Input Tax Credit(ITC) in accounts as per relevant law is duly reported in Form 3CD vide clause No. 27 (a).

40. There is no income or expenditure or prior period credited to the profit and loss account except those shown against clause 27 (b) of 3CD.

41. As certified, it is the practice of the Assessee to accept any loan or deposit or any sum and to make any repayment of loan or deposit or any sum in excess of Rs. 20,000 by account payee cheque or account payee bank draft or by electronic clearing system only.

42. There are no amounts/deductions admissible under Chapter VI-A or Chapter III (section 10A, section 10AA) under Clause 33 of Form No. 3CD except disclosed in Form 3CD.

43. That the assessee has complied with all the provisions of Chapter XVII-B or Chapter XVII-BB of the Act and deduction or collection of tax at source has been made at the applicable rates under the relevant provisions of the Act. There have been no cases of tax-deductible where tax has not been deducted at all, or shortfalls on account of lesser deduction than required to be deducted or tax deducted or tax deducted late or tax deducted but not paid to the credit of the Central Government in accordance with the provisions of Chapter XVII-B or Chapter XVII-BB of the Act, except as disclosed in clause 34(a) of Form 3CD.

44. The Assessee has furnished the statement of tax deducted and collected within the prescribed time except as disclosed in clause 34(b) of Form 3CD.

45. The interest under section 201(1A) or section 206C (7) disclosed under clause 34(c) of Form 3CD is correct.

46. There are no other quantitative details of any other item that an entity principally traded or manufactured other than disclosed under clause 35.

47. That assessee has not received any amount in the nature of dividend as referred to in sub-clause (e) of clause (22) of section 2 except as disclosed under clause 36A of Form 3CD.

48. During the previous year there was no audit conducted under the Central Excise Act 1944 and under section 72A of the Finance Act, 1994.

49. There was no adverse comment raised and reported by the cost auditor of the assessee during the previous year.

50. There is no demand raised or refund issued during the previous year under any tax laws other than the Income Tax Act,1961 and Wealth Tax Act, 1957 except as disclosed in clause 41 of Form 3CD.

51. The detail regarding turnover, gross profit etc. for the previous year and preceding previous year are correctly calculated and disclosed in clause 40 of Form 3CD.

52. The Assessee has complied the requirement of furnishing the statements in Form 61 or Form No. 61A or Form No. 61B

53. The Assessee has complied the requirement to furnish statement as prescribed under sub-section (2) of section 286.

54. There is no other expenditure of entities registered or not registered under the GST as disclosed in clause 44 of Form 3CD.

For and on behalf of

(Director Finance)

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2023 Audit Representation Engagement Letter

An engagement letter is a contract that establishes the services a practitioner will provide to his or her clients. Each engagement requires careful consideration to address its particular circumstances.

We’ve provided a sample engagement letter to use with representing your client before a taxing authority. Tailor the template to your clients’ needs.

All engagement letters and the Terms and Conditions Addendum contained in the AICPA Tax Section’s Annual Tax Compliance Kit have been developed in collaboration with CNA, the endorsed

Download the 2023 Audit Representation Engagement Letter

File name: 2023-audit-representation-engagement-letter.doc

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