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Management Representation Letter: Format, Content, Signature

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As of 2019, the FASB requires publicly traded companies to prepare financial statements following the Generally Accepted Accounting Principles (GAAP). Auditors are required by professional standards to report, in writing, internal control matters that they believe should be brought to the attention of those charged with governance (the board). Generally, if your auditor is going to put an internal control matter in a letter, they have assessed that the matter was the result of a deficiency in internal controls. This is an important part of that audit that the profession does not take lightly.

One common example of a deficiency in internal control that’s severe enough to be considered a material weakness or significant deficiency is when an organization lacks the knowledge and training to prepare its own financial statements, including footnote disclosures. The “SAS 115” letter is usually issued when any significant deficiencies or material weaknesses would have been discussed with management during the audit, but are not required to be communicated in written form. In performing an audit of your Plan’s internal controls and plan financials, your auditors are required to obtain an understanding of the Plan’s operations and internal controls.

A management representation letter is a form letter written by a company’s external auditors, which is signed by senior company management. The letter attests to the accuracy of the financial statements that the company has submitted to the auditors for their analysis. The CEO and the most senior accounting person (such as the CFO) are usually required to sign the letter. The letter is signed following the completion of audit fieldwork, and before the financial statements are issued along with the auditor’s opinion. External auditors follow a set of standards different from that of the company or organization hiring them to do the work.

In doing so, they may become aware of matters related to your Plan’s internal control that may be considered deficiencies, significant deficiencies, or material weaknesses. Audits performed by outside parties can be extremely helpful in removing any bias in reviewing the state of a company’s financials. Financial audits seek to identify if there are any material misstatements in the financial statements. An unqualified, or clean, auditor’s opinion provides financial statement users with confidence that the financials are both accurate and complete. External audits, therefore, allow stakeholders to make better, more informed decisions related to the company being audited.

The representation should reaffirm your client’s understanding of all significant terms in the engagement letter. A relevant assertion is a financial statement assertion that has a reasonable possibility of containing a misstatement or misstatements that would cause the financial statements to be materially misstated.

The purpose of an internal audit is to ensure compliance with laws and regulations and to help maintain accurate and timely financial reporting and data collection. It also provides a benefit to management by identifying flaws in internal control or financial reporting prior to its review by external auditors.

Depending on materiality and other qualitative factors, the auditors will consider the deficiency to be an “other” matter, significant deficiency, or material weakness. The auditor has discretion on which category the deficiency falls into, but are otherwise required to use the standard wording and definitions in the letter.

It serves to document management’s representations during the audit, reducing misunderstandings of management’s responsibilities for the financial statements. The definition of good internal controls is that they allow errors and other misstatements to be prevented or detected and corrected by (the nonprofit’s) employees in the normal course of performing their duties.

Material weaknesses or significant deficiencies may exist that were not identified during the audit, and auditors are required to disclose this in their written communication. The auditor’s report contains the auditor’s opinion on whether a company’s financial statements comply with accounting standards. The results of the internal audit are used to make managerial changes and improvements to internal controls.

What is a management representation letter?

A management representation letter is a form letter written by a company’s external auditors, which is signed by senior company management. The letter attests to the accuracy of the financial statements that the company has submitted to the auditors for their analysis.

A control objective provides a specific target against which to evaluate the effectiveness of controls. Management representation is a letter issued by a client to the auditor in writing as part of audit evidences. The representations letter must cover all periods encompassed by the audit report, and must be dated the same date of audit work completion.

These types of auditors are used when an organization doesn’t have the in-house resources to audit certain parts of their own operations. The assertion of completeness is an assertion that the financial statements are thorough and include every item that should be included in the statement for a given accounting period. The assertion of completeness also states that a company’s entire inventory, even inventory that may be temporarily in the possession of a third party, is included in the total inventory figure appearing on a financial statement. The compilation standards do not require practitioners to obtain a management representation letter, but this does not mean that it’s not a prudent thing to do. Obtaining a representation letter helps to ensure your client understands the services that you have provided, the limitations on the work you have completed, and that they are ultimately responsible for their financial statements.

The biggest difference between an internal and external audit is the concept of independence of the external auditor. When audits are performed by third parties, the resulting auditor’s opinion expressed on items being audited (a company’s financials, internal controls, or a system) can be candid and honest without it affecting daily work relationships within the company. Auditors evaluate each internal control deficiency noted during the audit to determine whether the deficiency, or a combination of deficiencies, is severe enough to be considered a material weakness or significant deficiency. In assessing the deficiency, auditors consider the magnitude of potential misstatements of your financial statements as well as the likelihood that internal controls would not prevent or detect and correct the misstatements.

Representation to Management

• In an audit of financial statements, professional standards require that auditors obtain an understanding of internal controls to the extent necessary to plan the audit.
• written confirmation from management to the auditor about the fairness of various financial statement elements.
• Auditors use this understanding of internal controls to assess the risk of material misstatement of the financial statements and to design appropriate audit procedures to minimize that risk.

The idea behind a management representation letter is to take away some of the legal burdens of delivering wrong financial statements from the auditor to the company. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Internal auditors are employed by the company or organization for whom they are performing an audit, and the resulting audit report is given directly to management and the board of directors. Consultant auditors, while not employed internally, use the standards of the company they are auditing as opposed to a separate set of standards.

If the auditors detect an unexpected material misstatement during your audit, it could indicate that your internal controls are not functioning properly. Conversely, lack of an actual misstatement doesn’t necessarily mean that your internal controls are working.

The determination of whether an assertion is a relevant assertion is based on inherent risk, without regard to the effect of controls. Financial statements and related disclosures refers to a company’s financial statements and notes to the financial statements as presented in accordance with generally accepted accounting principles (“GAAP”). References to financial statements and related disclosures do not extend to the preparation of management’s discussion and analysis or other similar financial information presented outside a company’s GAAP-basis financial statements and notes.

External audits can include a review of both financial statements and a company’s internal controls. When a company’s financial statements are audited, the principal element an auditor reviews is the reliability of the financial statement assertions. In the United States, the Financial Accounting Standards Board (FASB) establishes the accounting standards that companies must follow when preparing their financial statements.

In an audit of financial statements, professional standards require that auditors obtain an understanding of internal controls to the extent necessary to plan the audit. Auditors use this understanding of internal controls to assess the risk of material misstatement of the financial statements and to design appropriate audit procedures to minimize that risk. written confirmation from management to the auditor about the fairness of various financial statement elements. The purpose of the letter is to emphasize that the financial statements are management’s representations, and thus management has the primary responsibility for their accuracy.

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This letter is useful for setting the expectations of both parties to the arrangement. Almost all companies receive a yearly audit of their financial statements, such as the income statement, balance sheet, and cash flow statement. Lenders often require the results of an external audit annually as part of their debt covenants. For some companies, audits are a legal requirement due to the compelling incentives to intentionally misstate financial information in an attempt to commit fraud.

Management representation letter

As long as there’s a reasonable possibility for material misstatement of account balances or financial statement disclosures, your internal controls are considered to be deficient. An auditor typically will not issue an opinion on a company’s financial statements without first receiving a signed management representation letter. An audit engagement is an arrangement that an auditor has with a client to perform an audit of the client’s accounting records and financial statements. The term usually applies to the contractual arrangement between the two parties, rather than the full set of auditing tasks that the auditor will perform. To create an engagement, the two parties meet to discuss the services needed by the client.

As a result of the Sarbanes-Oxley Act (SOX) of 2002, publicly traded companies must also receive an evaluation of the effectiveness of their internal controls. As noted above, an internal control letter is usually the result of a deficiency in internal controls discovered during the audit, most commonly from a material audit adjustment. The letter includes required language regarding the severity of the deficiency.

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The parties then agree on the services to be provided, along with a price and the period during which the audit will be conducted. This information is stated in an engagement letter, which is prepared by the auditor and sent to the client. If the client agrees with the terms of the letter, a person authorized to do so signs the letter and returns a copy to the auditor. By doing so, the parties indicate that an audit engagement has been initiated.

Also, the letter provides supplementary audit evidence of an internal nature by giving formal management replies to auditor questions regarding matters that did not come to the auditor’s attention in performing audit procedures. Some auditors request written representations of all financial statement items. All auditors require representations regarding receivables, inventories, plant and equipment, liabilities, and subsequent events. The letter is required at the completion of the audit fieldwork and prior to issuance of the financial statements with the auditor’s opinion.

Auditors spend a lot of time assessing how material audit adjustments and immaterial adjustments that have the potential to be material will be communicated in the internal control letter. The Representation Letter is issued with the draft audit and is required by auditing standards to finalize the audit. The Representation Letter is a letter from the Association to our firm confirming responsibilities of the board and management for the financial statements, as well as confirming information provided to us during the audit. The President or Treasurer and Management need to sign the Representation Letter and return it back to our office within 60 days from the date the draft audit was issued. Representation Letters received after the 60-day mark may result in additional auditing procedures in order to finalize the audit and comply with auditing standards at an additional expense to the Association.

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Understanding the Representation Letter

Written by David T. Schwindt, CPA

What is a Representation Letter? As a Board member or manager of a community management company, you may be asked to sign a representation letter at the conclusion of an audit or a reviewed financial statement engagement.  Although the letter is from the Association/management company to the CPA, the CPA will generally draft the letter on behalf of the Association.   The letter includes certain assertions about the Association during the period covered by the financial statements.  Those assertions include but are not limited to the following:

• The Association/management company has provided the CPA with all requested financial information.
• The Association/management company has disclosed all related party transactions.
• The Association/management company has disclosed all existing and potential litigation.
• The Association/management company has disclosed any knowledge of fraud or financial irregularities.
• The Association takes responsibility for the design and implementation of a system of internal controls.  These controls include but are not limited to safeguarding assets, approving transactions and minimizing the risk of someone perpetrating a theft of money or information and not being discovered in a reasonable amount of time. Although the Board is ultimately responsible for this activity, it is common that Boards rely upon the management company to assist in this responsibility.

In some instances, the management company may sign a different representation letter because the responsibilities are slightly different.

Why is the Representation Letter necessary? The American Institute of Certified Public Accounts has determined that those charged with governance (the board of directors and the community management company) should take responsibility for the assertions in the representation letter.  CPAs are mandated to obtain the signed representation letter before issuing the final financial statements.

Who should sign the representation letter? Most often, the Board Chair, Board Treasurer and community manager signs the letter.

When does the Representation Letter need to be signed? The letter needs to be signed at the end of the engagement generally after a draft of the financial statements are issued.  Schwindt & Co combines the representation letter with the management letter comments and proposed adjusting journal entries for ease of review.  When the signed document is received by our office, we are then able to issue the final financial statements.

Should a new Board member or community manager who was not involved with Association management or governance during the period under audit or review be hesitant about signing the representation letter? This is a common question and the answer is simple.  No!  The first paragraph of the representation states that whoever signs the letter does so based on the best knowledge and belief of the person signing.  This means that even though you may be new to the Board or management company, it is perfectly fine to sign the letter because you will only be asserting to issues that you have knowledge.  It is very common for Board members/managers to sign a representation letter even though they were not involved during the period being audited or reviewed.

• Representation letters are normal and required before the issuance of audited/reviewed financial statements.
• Board members are only asserting to issues that they are aware of and new board members and managers frequently are required to sign representation letters.
• The Board Chair, Board Treasurer and community manager are generally required to sign the representation letter.

Questions regarding this article may be directed to David T. Schwindt, CPA at Schwindt & Co. (503) 227-1165.

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What is a Management Representation Letter?

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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The Role of Management Representation Letters in Audits

Explore the significance of management representation letters in audits, their preparation process, and common misunderstandings in this insightful overview.

Audits are a critical component of financial transparency and corporate governance. Within this process, management representation letters play an essential role that often goes unnoticed by those outside the accounting profession.

These documents serve as a written assertion from company management regarding the accuracy and completeness of information provided to auditors. Their importance cannot be overstated, as they underpin the trust and integrity of the entire audit process.

Purpose of Management Representation Letters

Management representation letters serve as a formal attestation from a company’s executives to the auditors, confirming the veracity of the financial statements and disclosures. These letters are a professional necessity, providing auditors with assurances that all relevant information has been disclosed. They are a testament to the management’s confidence in their financial reporting and their commitment to transparency.

The letters also support the auditor’s assessment of the risk of material misstatement in the financial statements. By obtaining written confirmations, auditors can reduce the extent of substantive testing required, which can streamline the audit process. This efficiency is beneficial for both the auditors and the company being audited, as it can lead to a more focused and timely audit.

Moreover, these letters can be a safeguard against potential disputes or legal issues that may arise post-audit. In instances where inaccuracies are discovered after the audit has been completed, the letter serves as a record that management had affirmed the completeness and accuracy of the information at the time of the audit. This can be particularly important in cases where financial statements are later found to be fraudulent or misleading.

Preparing a Management Representation Letter

The preparation of a management representation letter is a meticulous process that requires careful attention to detail and a comprehensive understanding of the company’s financial affairs. It is a collaborative effort between management and auditors to ensure that all significant information is accurately reflected.

Necessary Statements Identification

Identifying the necessary statements to be included in the management representation letter is a foundational step. These statements typically cover a range of areas such as the acknowledgment of responsibility for the fair presentation of financial statements in conformity with the applicable financial reporting framework, confirmation of the completeness of the information provided, and the disclosure of any subsequent events that may affect the financial statements. Management must also confirm that they have made the auditors aware of all known instances of fraud or suspected fraud affecting the company. The identification process is guided by professional auditing standards, such as those issued by the American Institute of Certified Public Accountants (AICPA) or the International Auditing and Assurance Standards Board (IAASB).

Information Completeness

Ensuring the completeness of information in the management representation letter is paramount. This involves a thorough review of the company’s financial records and disclosures to verify that all relevant information has been included. Management must confirm that all transactions have been recorded and are reflected in the financial statements. They must also attest to the appropriateness of the accounting policies applied and whether any unrecorded liabilities exist. This step is critical as it directly impacts the credibility of the financial statements and the audit’s outcome. The completeness of information also extends to the disclosure of any related party transactions and the effects of any uncorrected misstatements identified during the audit.

Review and Approval

The final step in preparing a management representation letter is the review and approval by the company’s top executives, typically the CEO and CFO. This review process is not merely a formality; it is an active examination to ensure that the letter accurately reflects the company’s financial position and that all statements can be substantiated. The approval signifies that management has taken ownership of the representations made within the letter. It is also an opportunity for management to discuss any concerns or clarifications with the auditors before the letter is finalized. The signed letter is then dated as of the last day of fieldwork, signifying that the representations are relevant and up-to-date with the findings of the audit.

Misconceptions About Representation Letters

A common misunderstanding about management representation letters is that they are a mere formality, a routine sign-off without substantial impact on the audit’s outcome. This view underestimates the letter’s function as a document that auditors rely upon for assurance beyond the financial data and records they examine. It is not simply a procedural step, but a declaration that can have legal implications for the signatories, particularly if it is later found that the information provided was knowingly false or misleading.

Another misconception is that the letter is solely for the benefit of the auditors. While it is true that auditors use these letters to corroborate information and reduce audit risk, the benefits extend to the management and the company as well. The process of preparing the letter encourages a comprehensive review of the company’s financial disclosures, which can lead to the identification and rectification of errors before the audit is finalized. This proactive approach can enhance the quality of financial reporting and potentially prevent future financial discrepancies.

There is also a belief that once the letter is signed and the audit is complete, the responsibilities of management in relation to the representations made are concluded. However, the representations have a lasting effect, as they are a testament to the financial condition of the company at the point of the audit. Should any issues arise from the period covered by the audit, the representations made can be scrutinized for their accuracy and completeness.

How External Users Leverage Accounting Information

Strengthening your control environment for financial integrity, you may also be interested in..., assessing and responding to material misstatement risks, directors loan overview for financial professionals, understanding preemptive rights in corporate governance and shareholder protection, internal vs external audits: key differences explained.

03 Apr What are Management Representation Letters?

In the world of assurance engagements, a management representation letter is a formal document that represents management’s agreement with the financial statements that are being audited or reviewed. This letter is a critical part of the assurance engagement process and is required by the auditor or reviewer as evidence that management acknowledges and accepts responsibility for the financial statements.

A management representation letter is typically issued by senior management, such as the CEO or CFO, and is addressed to the CPA firm performing the audit or review. It contains a series of statements that confirm certain facts and assurances about the company’s financial information, including the completeness and accuracy of financial records, disclosures of relevant information, and adherence to accounting principles.

The letter serves several purposes, including:

• Confirming the accuracy of financial information : The management representation letter is used to confirm that the financial statements are accurate and complete. This helps provide assurance to stakeholders that the financial statements are reliable.
• Demonstrating management’s responsibility : By signing the letter, management acknowledges its responsibility for the accuracy and completeness of the financial statements. This helps to provide accountability and transparency to stakeholders.
• Providing evidence for auditors and reviewer s: The management representation letter provides evidence to the CPA firm that management has taken responsibility for the financial statements, which helps to support the audit opinion or review conclusion.
• Reducing the risk of misstatements : The letter helps to reduce the risk of misstatements by requiring management to review the financial statements and provide assurance that they are accurate and complete.

Overall, the management representation letter is a critical part of the assurance engagement process, as it helps to provide assurance that the financial statements are accurate and complete, and that management takes responsibility for them. Without this letter, CPA firms would not have the necessary evidence to support their opinions and conclusions, which could lead to a lack of confidence in the financial statements and potential legal and financial consequences for the company. In fact, CPA firms are not permitted to complete their engagement and issue an audit or review engagement report until management provides a signed management representation letter.

If you require an audit or review and would like to speak to someone about these processes, please contact us to set up a free consultation.

Jennifer Scott

Cpa, cga – senior manager.

Jennifer Scott, a Senior Manager at Clearline brings a wealth of expertise in Private Enterprise and Assurance, holding designations as a CPA and CGA. Jennifer’s focus at Clearline includes conducting reviews, compilations, and providing tax services tailored to owner-manager businesses and partnerships, with a keen interest in industries such as professionals, manufacturing, real estate, and services. Her commitment to exceptional client service is evident through her proactive approach to staying updated on evolving accounting standards and tax legislation, thereby making her clients’ lives easier Jennifer’s educational background includes a Bachelor of Commerce from UBC with a major in Accounting, followed by over 15 years of experience in public practice, specializing in private enterprise. She appreciates the supportive environment at Clearline and enjoys various activities outside of work, including travelling, cheering on her children in sports like soccer, baseball, and volleyball, indulging in long walks with her dog while listening to podcasts, spending quality time with loved ones, and exploring her passion for baking through experimenting with new recipes.

Charmaine Pirrie

Cpa, ca(sa) – senior manager.

Charmaine Pirrie, a Senior Manager at Clearline is a CPA and CA (SA) with a background in audit and review engagements. With experience from Grant Thornton and D&Co, she brings expertise in private company audits and values Clearline’s supportive environment and technical resources. Charmaine also finds fulfillment in delving into her clients’ businesses to provide tailored services, ensuring meticulous audit and review procedures. Outside of work, she enjoys spending time with family, going for walks, and swimming.

Deepeka Dhillon

Cpa – manager.

Deepeka Dhillon, a Manager at Clearline, holds a CPA designation with a focus in Private Enterprise and Tax. Her primary responsibilities include compliance, corporate restructuring, and, estate and succession planning. Deepeka’s passion lies in continuous learning, enabling her to provide tailored solutions to clients’ unique needs. With a CPA designation and completion of the CPA in-depth tax program, she brings a strong educational background to her role at Clearline. Deepeka values the countless opportunities at Clearline to expand her knowledge in the complex world of tax. Outside work, she enjoys spending time with her beloved Jack Russell Terrier, Opie.

Raj Momrath

Cpa, ca, senior tax manager.

Raj Momrath, a Senior Tax Manager at Clearline, is a CPA, CA specializing in Canadian Tax. With a focus on Canadian tax planning, corporate reorganizations, estate planning, and providing business advice, Raj caters to a diverse clientele, including small owner-manager companies, high-net-worth individuals and large privately held multinational firms. His passion lies in helping Canadian owner-manager businesses and their shareholders minimize their overall tax obligations while navigating disputes with the Canada Revenue Agency and ensuring compliance with the complex Canadian tax system. Raj’s professional journey includes prior experience in PwC’s tax group, where he obtained his Chartered Accountant designation and then some time at some mid-sized firms. Raj completed the CPA Canada InDepth Tax course in 2017 strengthening his knowledge of Canadian tax. At Clearline, Raj appreciates working alongside knowledgeable colleagues and enjoys spending quality time with his wife and two sons and attending and volunteering with their sports activities. In his leisure time, Raj indulges in barbequing, golfing, and spending time outdoors, finding relaxation and enjoyment in these pursuits.

Julia Wallis

Julia Wallis, a Senior Manager at Clearline, holds designations as a CPA, CGA, and also holds a BA. Working within the Private Enterprise Group, her primary focus revolves around assisting entrepreneurs in understanding their personal and business finances while ensuring compliance with tax reporting requirements. Julia finds fulfillment in learning about her clients’ businesses and providing financial insights to enhance their management effectiveness while optimizing tax strategies. With a diverse career spanning various companies and public practice roles, including as a controller, Julia’s progression has equipped her with invaluable skills and insights into different business operations. She chose Clearline for its respected partners and staff, aligned philosophy on client service, and flexibility to balance demanding tax filing periods with leisure time for travel and personal interests such as gardening, wine exploration, reading, and relaxation.

Annelie Vistica

Cpa, ca – principal.

Annelie Vistica, a Principal at Clearline, is a CPA and CA with a strong background in private enterprise and assurance. With a Bachelor of Accountancy from the University of Stellenbosch in South Africa and extensive experience in tax, Annelie brings expertise in business setup, growth planning, and estate transitioning. She is passionate about engaging with clients to support them through various business stages, from inception to succession planning. Annelie values the supportive environment at Clearline, where she appreciates colleagues’ assistance in tax and assurance. Outside work, she enjoys spending time with her family and dog, exploring nature, visiting family in the Okanagan, and travelling the world.

Bilal Kathrada

Cpa, ca, principal.

Bilal, a Principal at Clearline Chartered Professional Accountants, primarily focuses on income tax and succession planning for Canadian owner-managed businesses in various industries. Bilal received his Bachelor of Commerce degree from the University of Victoria and obtained his CA designation in 2005.

Prior to Clearline, he worked in the tax group of a large international accounting firm in Vancouver and a mid-sized accounting firm located in the Fraser Valley.

Outside of the office, he enjoys spending time with his wife and three children. He enjoys outdoor activities such as golf and spending time with his family and friends.

Danny Sandhu

Cpa, manager.

Bio coming soon.

Shehzel Saif

Cpa, tax manager.

As Clearline’s Tax Manager, Shehzel focuses on tax planning, corporate reorganizations and succession and estate planning. She’s passionate about continuous learning and staying up to date on tax legislation changes and helping clients with succession. In addition to her CPA designation, Shehzel also has a Bachelor of Business Administration and has completed the CPA In-Depth Taxation Program. Outside of work, she enjoys spending time with family and friends, traveling and trying out new recipes.

Ameeta Randhawa

As Clearline’s HR Manager, Ameeta supports our firm’s greatest resource—our staff. With a Bachelor of Business Administration in Human Resources and over 7 years of HR experience in various industries, she ensures all employees have a positive experience at Clearline. Ameeta’s focuses include recruitment, performance management, employee relations, program and policy development, and employee engagement. Outside of work, she enjoys traveling and spending time with friends and family.

CPA, CA, Senior Manager

Michael is a Senior Manager in Private Enterprise, carrying out reviews, compilations, and tax services for small- to medium-sized businesses. With a Bachelor of Commerce specializing in finance and a Diploma in Accounting, backed by over a decade of accounting experience, Michael is a trusted advisor who helps clients’ businesses succeed. Outside of the office, Michael enjoys spending time with family, trying out different restaurants in the city, and building and collecting mechanical keyboards.

CPA, CGA, Manager

Victor K. Yoshida

Victor was born and raised in Vancouver and obtained his Bachelor of Commerce from the University of British Columbia. He articled with Deloitte & Touche and received his CA designation in 1984. Victor was accepted to the firm’s tax group and went on to complete the Canadian Institute of Chartered Accountants In-Depth Tax course.

Victor specializes in Canadian income tax issues for professional and owner-managed businesses. He has extensive experience with business succession, estate planning, wealth preservation issues, corporate reorganizations, as well as mergers and acquisitions.

Victor was a member of the education committee of the Institute of Chartered Accountants of British Columbia and has held executive positions with various amateur sport organizations.

In his free time, Victor enjoys training for marathons, travelling, and spending time with his family.

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• PROFESSIONAL LIABILITY SPOTLIGHT

Use of e-signatures for engagement documentation

• Firm Practice Management
• Firm Operations

Is a client's electronic signature on engagement letters, management representation letters, and other documents acceptable? This is a question many practitioners pose to the AICPA Professional Liability Insurance Program. Generally speaking, e - signatures are binding and thus comparable to a "wet" signature on a hard copy document for purposes of proving their validity, enforceability, and admissibility in the event of litigation. However, there are caveats that need to be considered and understood. This column explores those considerations in order to help refute an assertion that an e - signature is not authentic.

On June 30, 2000, the Electronic Signatures in Global and National Commerce Act ( E - Sign Act), P.L. 106 - 229 , was signed into law, providing a general rule for the validity of electronic records and signatures pertaining to transactions in or affecting interstate or foreign commerce. For a signature to be valid under the E - Sign Act, information relating to a transaction affecting interstate or foreign commerce must be provided or made available to the consumer in writing. The use of an electronic record to provide or make available such information is satisfied if it meets several basic requirements related to consent, withdrawal, and notification.

The E - Sign Act is mirrored, in some form of legislation, by all states and permits most documents to be signed electronically. However, enforcement of e - signed documents can be more involved. Applicable case law challenging e - signatures demonstrates that they are most likely to be upheld, which has precedential value with respect to the successful use of e - signatures . Below we outline several common questions regarding the validity of e - signatures , summarize cases that help address these questions, and provide takeaways for CPA firms to consider.

Did the e-signature actually come from the individual whose signature is affixed?

The case: In Julie Ann Zulkiewski v. American General Life Insurance Co. , No. 299025 2012 WL 2126068 (Mich. Ct. App. 2012), someone changed the beneficiary of a life insurance policy using an e - signature . Subsequent to the insured's death, both the new beneficiary and the prior beneficiary questioned the validity of the e - signature . The court held that, absent some proof to the contrary, the individual who changed the beneficiary had the correct login information to create the change. As a result, the court upheld the record change made via the e - signature .

Takeaway: The greater the amount of personal information required to create and use an e - signature , the more likely that the signature's validity will be upheld. According to the Zulkiewski court, some of this information may include, but is not limited to:

• Account numbers;
• Tax identification numbers; and
• Mother's maiden name.

Will multiple documents with a single e-signature be upheld?

The cases: In Mitchell, et al. v. Craftworks Restaurants & Breweries, Inc. , No. 18 - 879 (RC) (D.D.C. 2018), a restaurant worker claimed not to have e - signed an employment agreement. In its opinion, the court reasoned that because documents were signed individually by the employee, there was little chance of confusion about what was being signed.

Similarly, but with a different decision, in Ruiz v. Moss Bros. Auto Group, Inc. , 232 Cal. App. 4th 836, 181 Cal. Rptr. 3d 781 (4th Dist. 2014), the alleged e - signature of an employee on an employment agreement was not upheld. The court sided with the employee who did not specifically remember signing employment documents. There was no detailed record of when or how the documents had been signed. Therefore, the court concluded that the employer lacked a security procedure to support its assertion that the employee had signed the documents.

Takeaway: If multiple documents require a signature, ensure that an e - signature is affixed to each document to help reduce confusion regarding which documents were signed.

Are documents signed on mobile devices valid?

The case: In Berkson, et al. v. GOGO LLC, et al. , 97 F. Supp. 3d 359 (E.D.N.Y. 2015), a plaintiff asserted that the e - signature should not be upheld because the mobile device screen was small and the terms were lengthy. The court used the term "browsewrap" to describe a lengthy set of contractual terms presented within a browser, including additional terms available via hyperlink. The court also explored studies on reading behavior as well as prior court decisions before upholding the terms agreed to by the signer. Typically, the e - signature will be enforceable under this decision if:

1.The presentation gave a reasonably prudent user, on inquiry, a notice of the terms;

2.The user was encouraged to examine the terms via a hyperlink; and

3.The hyperlink was placed in a prominent location where the user was likely to see it.

Takeaway: Signatories should be encouraged to review all applicable terms prior to signing an agreement, including when presented through a mobile device. For example, when a CPA firm incorporates standard terms and conditions into an engagement letter by hyperlink, the user should be encouraged to read and agree to the hyperlinked standard terms and conditions, as well as the engagement letter. In addition, testing and documenting a user's experience on different devices prior to a firm's deployment of a mobile device signature process may assist in the enforcement of an e - signature affixed to a document via a mobile device.

Is there an audit trail to support the delivery and receipt of documents?

The case: In IO Moonwalkers, Inc. v. Banc of America , 814 S.E.2d 583 (N.C. Ct. App. 2018), a customer entered into an agreement with a bank for credit card processing services. The agreement was e - signed using a third - party signature verification company. The customer e - signed the documents but later asserted it never signed them and, thus, was not bound to them. The court held that the e - signature was binding, based upon the records maintained by the third - party signature verification company. Documentation evidencing the email delivery record and return of the e - signed documents, the audit trail, was critical, proving that the documents were delivered to and returned from the customer's email account.

Takeaway: Documentation retained by third - party signature verification companies supports the enforcement of e - signatures . If a third - party solution is not used, consider retaining documentation of office time records for meetings and emails, detailing transmission and receipt of the e - signed documents. Creating this audit trail is one of the advantages of using an e - signature process.

Was there a prior understanding that supersedes the e-signed document?

The case: In Harpham v. Big Moose Inspection , 2015 WL 5945842 (Mich. App. Ct. 2015), a client e - signed a home inspection agreement while in the process of making an appointment. Specific terms were included in the document presented to the client prior to the scheduled inspection. The client asserted that an oral agreement for services existed before a written agreement was e - signed . Testimony supporting the e - signature stated that the client was emailed a copy of the agreement and had opened the document. Moreover, the client had clicked on an agreement button affirming the terms of the contract. Although the client asserted that the document had not been received or signed, the weight of the evidence supported a court ruling upholding the e - signature and the document to which it was affixed.

Takeaway: CPA firms generally discuss services to be provided with the client prior to formalizing the engagement with a written document. E - signing an engagement letter close to client and engagement acceptance discussions but before rendering services may reduce the likelihood of a client assertion that there was an oral agreement related to services.

FINAL THOUGHTS

The appropriate use of e - signatures can provide an expeditious means of executing documents relative to the delivery of professional services by CPA firms. By considering the takeaways outlined in this column, strategies may be developed to ensure that digital technology represents an efficient process and also helps to mitigate risk exposure.

Signing on the digital line

754 million: The number of global e-signature transactions in 2017, an increase from 89 million in 2012.

Source: Statistica.com.

Steven M. Platau, CPA, J.D. , is professor of accounting at the John H. Sykes College of Business, The University of Tampa. Deborah K. Rood, CPA , is a risk control consulting director at CNA. For more information about this article, contact [email protected] .

Continental Casualty Company, one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, is available at 800-221-3023 or visit cpai.com.

This article provides information, rather than advice or opinion. It is accurate to the best of the authors' knowledge as of the article date. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations.

Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice.

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• Wrapping Up Audits: The Why and How

By Charles Hall | Auditing

• You are here:

Wrapping up audits is a chore. But today's post will help you do just that. Do you ever have the almost-done illusion? You think you’re almost done, but you’re not—and you’re not even close. Frustrating! 

What? I’m Not Done?

I remember my boss asking me, “what’s the status of the audit?” I answered, “oh, I’m about 90% done.” But actually I was—at best—75% through. Why the miscalculation? I mistakenly thought if the planning and transaction areas (e.g., cash) were complete, that I was nearly finished. I was wrong. Wrapping up audits takes (or least can take) a significant amount of time. 

Wrapping Up Audits — An Overview

In the final stages of an audit, we are (among other things):

• Updating subsequent events
• Considering going concern
• Creating final analytics
• Providing audit entries to the client
• Summarizing passed journal entries
• Reviewing the file
• Creating financial statements
• Completing the disclosure checklist
• Reviewing financial statements
• Obtaining a management representation letter
• Creating your audit opinion
• Creating a management letter
• Communicating control deficiencies

There is no required order for these steps. The sequence provided below is simply my normal method.

Let’s start with subsequent events.

Updating Subsequent Events

The financial statements should disclose material subsequent events such as legal settlements, the issuance of debt, the adoption of a benefit plan, or the sale of stock. And while disclosure is important, subsequent events—such as legal settlements—can affect the year-end balance sheet. Some subsequent events trigger the accrual of liabilities.

Here are common subsequent event procedures:

• Inquire of management and company attorneys about subsequent events
• Review subsequent receipts and payments
• Read the minutes created after period-end
• Review subsequent interim financial statements
• Review the subsequent year’s budget
• Obtain an understanding of management’s methods for accumulating subsequent event information

In performing these procedures, obtain subsequent event information through the audit report date. 

If you’ve sent attorneys’ letters asking about potential litigation, you may need to get an update to coincide with the audit report date. You want the attorney’s written response to be as close to the audit report date as possible. How close? Usually within two weeks. If there are significant issues, you may want to bring the written response through the audit report date.

Another critical issue in wrapping up audits is going concern.

Considering Going Concern

Even in the planning stage, auditors should consider going concern , especially if the entity is struggling financially. But as you approach the end of the audit, going concern should crystallize. Now you have your audit evidence, and it’s time to determine if a going concern opinion is necessary. Also, consider whether going concern disclosures are sufficient. If substantial doubt is present, then the entity should include going concern disclosures (even if substantial doubt is alleviated by management’s plans).

And what is substantial doubt? The Financial Accounting Standards Board defines it this way:

Substantial doubt about the entity’s ability to continue as a going concern is considered to exist when aggregate conditions and events indicate that it is probable that the entity will be unable to meet obligations when due within one year of the date that the financial statements are issued or are available to be issued.

So, for nongovernmental entities, ask “Is it probable that the company will meet its obligations for one year from the opinion date?” If it is probable that the entity will meet its obligations, then substantial doubt does not exist. If it is not probable that the entity will meet its obligations, then substantial doubt exists.

And what is the period of time to be considered when assessing going concern? One year from the audit report date—unless the entity is a government. If the entity is a government, then the evaluation period is one year from the financial statement date (though this period can lengthen in certain circumstances).

The going concern evaluation is one that management makes as it considers whether disclosures are necessary. 

Then the auditor considers going concern from an audit perspective. If substantial doubt is present, the auditor issues a going concern opinion. Also, if going concern disclosures are incorrect or inadequate, the auditor may need to modify the opinion.

Wrapping up audits also includes the creation and review of final analytics.

Creating Final Analytics

Auditors create planning analytics—the comparison of key numbers—early in the audit. Why? To look for the risk of material misstatement. Unexpected changes in numbers are indicators of potential error or fraud. They create questions. When unexpected variations exist, auditors plan procedures to test why. 

So, what is the purpose of final analytics? To determine whether unanswered questions still exit. Auditors want to know, given the audit evidence in hand, that the numbers are fairly stated.

What analytics should you use? Audit standards don’t specify particular analytics. Some auditors read the financial statements (when comparative periods are presented). Others review key ratios. And some compare current year trial balance numbers with the prior year. 

My final analytics are often the same as those in the beginning. For example, if my planning analytics include a comparison of trial balance numbers, so will my final analytics. Why do I use the same analytics? I want to know that the questions raised in the beginning are now answered. 

In wrapping up your audits, consider the numbers important to your clients. Many auditors—in an exit conference—provide key analytics to management and board members, such as performance indicators or liquidity ratios. Consider whether these numbers should be a part of your final (and planning) analytics. 

Now, you are ready to provide your proposed audit entries.

Providing Audit Entries to the Client

Give your audit entries to your client. Hopefully, you discussed these adjustments with your client when you discovered them. If you did, this part is easy. You’re just giving your client the entries. If not, review the proposed adjustments with the client and see if they agree.

Your client may desire to pass on (not post) some immaterial entries. 

Summarizing Passed Journal Entries

Prior to creating the representation letter, the auditor needs to summarize passed journal entries. Why? Audit standards require management to provide a written assertion regarding whether the uncorrected misstatements are material. The summary assists in that determination. 

Once you summarize the uncorrected misstatements, you should consider whether they are material. Review your audit materiality and consider whether the passed adjustments are acceptable. If material uncorrected misstatements exist, consider the effect on your opinion.

In addition to all of the above, you need to review the audit file to make sure everything is in order. 

Reviewing the File

Perform your final review of the work papers and sign off as the reviewer. All preparer and reviewer dates must precede or coincide with the representation letter date (which is the opinion date). Why? Reviews are a part of your evidential matter. Documentation—including reviews—must exist no later than the opinion date.  See my article titled Seven Excuses for Unnecessary Audit Work Papers .

Once the audit file is ready, it’s time to create the financial statements (if you’ve been engaged to do so).

Creating Financial Statements

Larger entities usually create their own financial statements, but smaller organizations sometimes outsource this work to their auditors. 

If the auditor creates the financial statements, the following needs to occur:

• The audit firm creates the financial statements.
• The audit firm reviews the financial statements 
• The client reviews the financial statements 

If you (the auditor) are engaged to create the financial statements, complete them on time. Why? Management must read and take responsibility for the financial statements prior to signing the representation letter. 

Also, the auditor’s review of the financial statements needs to be completed prior to the date of management’s representation letter. Why? All evidential matter, including the audit firm’s review of the financial statements, must be complete before the opinion is issued.

So, management and the auditor must review the financial statements before the opinion is issued. We’ll discuss the financial statement review process for auditors in a moment, but before we do, let’s take a look at completing the disclosure checklist.

Completing the Disclosure Checklist

Whether you or your client creates the financial statements, a disclosure checklist helps ensure the completeness and propriety of the notes. Remember your audit opinion covers the financial statements and the disclosures. 

Since new accounting standards are issued throughout the year, make sure you use a current checklist. Otherwise, you may not be aware of new or amended disclosure requirements.

Now it’s time to review the financial statements.

Reviewing Financial Statements

If your audit firm creates the financial statements, at least two people should be involved—one creating and one reviewing. Why? Two reasons: (1) the self-review threat (an independence issue) and (2) blind spots.

So, what is a self-review threat? It’s the idea that the person creating something (e.g., the financial statements) will not be independent in reviewing the same. Why is this a problem? Well, we are issuing an independent auditor’s opinion. That’s why we need a second-person review of the financial statements—to mitigate the self review threat.

Additionally, a second-person review is useful in overcoming blind spots. If I create financial statements with errors, I may not see my own mistakes. I have a blind spots. Such errors are often readily apparent to a second person. See my  post about reviewing financial statement on a computer screen .

Once the financial statements have been prepared and reviewed by your audit firm and your client, it’s time to obtain the management representation letter, another step in wrapping up audits.

Obtaining a Management Representation Letter

The management letter is usually prepared by the audit firm and is provided to the client for signing. In the letter, the client is making certain assertions regarding issues such as the following:

• Management’s responsibility for the financial statements
• Management’s responsibility for internal controls
• Assurances that all transactions have been recorded
• Whether known fraud has occurred
• Whether known non-compliance with laws or regulations occurred
• The effects of uncorrected misstatements
• The assumptions used in computing estimates
• Related party transactions
• Subsequent events
• Supplementary information
• Responsibility for nonattest services

The representation letter should cover all financial statements and periods referred to in the auditor’s report. If management refuses to provide the management letter, then consider the effect upon the auditor’s report. Such a refusal constitutes a scope limitation and will usually preclude the issuance of an unmodified opinion.

Another part of wrapping up audits is creating your audit opinion.

Creating Your Audit Opinion

You’ve planned and performed your audit. 

Now you need to consider the type of opinion you’ll issue. If an unmodified opinion is merited, no problem. Use the standard opinion. But if you are going to qualify the opinion, or issue a disclaimer or adverse opinion, there’s more work to be done. Additionally, sometimes you need to add an emphasis-of-matter paragraph or an other-matter paragraph to your opinion.

Determine which opinion is appropriate. Most CPAs use sample reports from national publishing companies. Others use sample reports directly from the auditing standards. Regardless, place a copy of the sample report in your audit file. Why? Your peer reviewer—or someone else—might question your report language. Responding to such questions is much easier with the sample report in hand.

Create your opinion and have a second person review the report, comparing the opinion to the sample report. Check and recheck your wording.

Another consideration in wrap-up is whether you’ll issue a management letter. 

Creating a Management Letter

While not required, you can provide a written management letter to your audit client. Why would you do so? To add value to the audit. 

What is a management letter? Suggestions for improving the business. 

What should you include in the letter? It’s up to you (and dependent upon your observations during the audit), but here are a few examples:

• Suggested monthly reports for the owners or management
• Warnings regarding cyber attacks and prevention techniques
• A suggestion that excess cash be used to pay off high interest rate debt
• Procurement and bidding recommendations
• A suggestion that security cameras be installed
• Software recommendations 
• A recommendation that all equipment be physically inspected and reconciled to the property ledger 
• A suggestion that the company review its property insurance coverage
• Best practices for the implementation of new accounting standards

If you provide a management letter, give the client a draft prior to issuance. Why? To avoid the embarrassment of making inappropriate suggestions—maybe they’ve already done what you are suggesting, for example. 

In addition to the management letter, you may also need to communicate significant deficiencies and material weaknesses.

Communicating Control Deficiencies

Audit standards define significant deficiencies and material weaknesses as follows:

• Significant deficiency. A deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance.
• Material weakness. A deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis.

Auditing standards require a written communication of significant deficiencies and material weaknesses.

Control deficiencies are often noted during the risk assessment process, particularly as you perform walkthroughs. 

You may also note control weaknesses as you prepare audit journal entries, especially if the adjustments are material. Errors are usually the result of weak internal controls.

Regardless of how you become aware of the control weaknesses, capture them immediately. Otherwise, you may forget them later on. Also, if control weaknesses are material, you may need to communicate them to management when they are discovered (and again at the completion of the audit).

As you are wrapping up audits, create your internal control letter based on the weaknesses noted.

Consider providing a draft of the internal control letter to management prior to final issuance. Why? To avoid potential misunderstandings. If there’s a disagreement between the client and the auditor, it’s best to clear the issue prior to final issuance of the internal control letter.

One other suggestion: if there are sensitive issues, the senior audit team member (usually the engagement partner) should make this communication. It’s a time to speak the truth with tactfulness—and experience helps.

I started this chapter by saying that wrap-up can take a significant amount of time. As we have seen, there is much to be done in this closing stage of the engagement. 

Wrap Up Procedures in Auditing - A Simple Summary

Here’s a summary of wrap up procedures in auditing:

• Perform subsequent event procedures to ensure that all relevant information is included in the financial statements 
• Consider whether going concern disclosures are necessary and, if required, complete; also consider the need for a going concern opinion
• Create final analytics and determine if all significant variations in the numbers have been addressed
• Provide proposed audit entries to the client 
• Summarize and review all passed journal entries to ensure that material misstatements are not present
• Review the work paper file 
• Create the financial statements (if you have been engaged to do so)
• Complete a current disclosure checklist
• Review the financial statements 
• Obtain a signed management representation letter 
• Create your audit opinion 
• Create a management letter 
• Communicate significant deficiencies and material weaknesses 

There you have it: the wrap-up process. Now, when your boss asks, “what’s the status of the audit?” you can say, “I’m at 90 percent”—and be sure of it. This post is a part of a series of articles title The Why and How of Auditing . Check it out. The series is also  available as a book on Amazon. Be one of the thousands who have purchased this resource. You'll find it useful as a partner or a staff member.

About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles consults with other CPA firms, assisting them with auditing and accounting issues.

John, Thanks.

When new staff are involved in an engagement, I think it’s a must for reviews to occur as often as possible. For more experienced staff, those reviews might be done weekly (or every two weeks). It just depends on the level of the personnel. But, yes, it’s good to “touch” the file as few times as possible.

Great article, Charles, thank you. How do we reconcile the concept of “minimizing touches” because of inefficiency to constant monitoring and review-as-you-go? I prefer the second for the reasons you state above, but a lot of productivity guidelines suggest otherwise.

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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.

In some cases, however, auditors may not have the option to apply some substantive audit procedures . However, that does not imply the auditor must not consider those areas. It also does not infer that auditors must provide a negative opinion regarding those areas. In these cases, auditors can also obtain a representation letter from the client’s management.

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.

It is a written statement written by auditors. This statement attests to the accuracy of the financial statements given to the auditors for analysis. Auditors present this letter to the client’s management, who signs the letter constructing a form of audit evidence. While this evidence is necessary, it may not represent sufficient appropriate audit evidence.

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?

A typical representation letter will include various areas to cover the auditors’ liability towards the audit assignment. It will also include areas to ensure the management is aware of its responsibility to prepare accurate financial statements. According to accountingtool.com , representation letters will cover the following areas.

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?

In some cases, auditors cannot obtain a reliable representation letter from the management. These may occur when the auditor has concerns about the competence, integrity, or diligence of the management. In these cases, the standards require auditors to determine the effect that such issues may have on the reliability of the representation letters.

When auditors obtain representation letters that are inconsistent with other audit evidence, they must perform procedures to resolve any discrepancies. If they cannot do so, they will need to reconsider the prior assessment of the client’s management. The auditors must also determine the effects such circumstances will have on the reliability of the representation letter or the audit assignment.

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.

Representation letters are a form of written representation and constitute an essential part of audits. These letters attest to the accuracy of the financial statements presented by the client’s management. There are several areas which representation letters cover. If auditors cannot obtain reliable representation letters, they will need to evaluate the situation and take appropriate actions.

Related Posts:

• Reasonable Assurance Engagement: All You Need to Know!
• Limited Assurance Engagement: All You Need to Know!
• Types of Assurance Engagement: All You Need to Know
• Objectives of an Assurance Engagement

What Is a Representation Letter?

The Letter of Representations is a letter written from the Association to its accountant representing that the financial statements for the time period covered by the engagement are the responsibility of "management". In a community association, management include "those charged with governance" (the board of directors) and the professional manager. (See further discussion under “Who,” below.) Management confirms to the best of their knowledge various facts, including the following:

• That all financial records have been made available.
• That there have been no irregularities involving management, employees, etc.
• That all related party transactions have been disclosed
• That no events have occurred after the end of the fiscal year about which the CPA should know.

Each accountant may put different representations into their letters. Some of these representations may deal with insurance, legal matters, reserves and taxes. Discuss those items that are unclear with the CPA. Ask for explanations of unfamiliar terms or phrases.

It is important to note that the representation is “to the best of our knowledge”. As long as the person signing the letter does not know of any conflicting facts, they can sign the letter of representations.

A letter of representations cannot be signed earlier than the date of the audit report. Thus, most CPAs, including our firm, issue the letter along with a draft copy of the audit report. The Board should review the audit report and the report of internal controls, as well as any other documentation that is provided. Once the Board is assured that the audit is materially complete and accurate, they sign the Letter of Representations. This is the notification to the CPA that the final audit report is ready to be issued.

Why is the letter issued? The technical answer is that the letter is a requirement of the American Institute of Certified Public Accountants, the governing body for CPAs. Thus all CPAs should be requiring this letter for all audit engagements.

From a practical standpoint, this letter assures the CPA that management has given the accountant all pertinent information. The financial statements belong to the Association, not to the CPA, so it is important that management take responsibility for the amounts contained within the final audit or review report.

If a CPA cannot obtain a signed representation letter in an audit, the auditor will be required to change the report to a “qualified report”  (as compared with an “unqualified” or “clean” opinion), if limited representations can be obtained or will need too “disclaim” an opinion or “withdraw” from an engagement if no representations can be obtained.

Who should sign the representation letter? Guidance states that “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”. In community associations, as discussed above, this term may involve board members as well as professional management. Thus, it is up to the CPA to determine who should sign the letter. We interpret the term “management” to include “those charged with governance”. Most professionals in this industry agree that this includes the Board of Directors.

In our firm, we ask for the president and treasurer of the association, as well as the community association manager - if there is one - to sign the report. Board members should not be hesitant to sign the representation letter if they have complied with the terms of the letter - to the best of their ability. It does not matter if a board member has been in office only a few months. The current Board is responsible for the report that is going out to the membership; thus, it is the current Board that is being asked to sign “to the best of their knowledge”. Guidance supports this determination with the statement – “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”.

In conclusion , the AICPA in its brochure, The Representation Letter in an Audit - An Important Communication Between Management and the Independent Audito r, states the following:

“…as management, you are asked to acknowledge that you - rather than the auditor - have primary responsibility for the financial statements and that to the best of your knowledge these statements are correct. The letter does not change or add to your to your fundamental responsibilities, nor does it relieve the auditor of any of his or her responsibilities. It simply clarifies the traditional roles that management and the auditor perform.”

In summary – the Letter of Representations

• Required by auditing and accounting standards
• It simply clarifies that to the best of your knowledge that these statements are correct.
• Must be signed by those who govern and manage the Association
• Is the notification to the CPA that the final report is ready to be issued

14+ Management Representation Letter Format, What is It, Examples

• Letter Format
• January 24, 2024
• Business Letters , Contract Letters , Legal Letters

Management Representation Letter Format : A management representation letter format is a formal document used by auditors to obtain written confirmation from management about certain financial and non-financial matters . The Business letter is an important part of the audit process as it helps auditors gain a better understanding of the client’s business operations, accounting policies, and financial reporting practices .

• Business Inauguration Invitation Letter 
• Business Proposal Acceptance Letter Format
• Business Invitation Letter Format
• Business Agreement Letter Format
• Business Contract Letter Format 

Management Representation Letter Format

Content in this article

The management representation letter format is typically including the following components:

• Opening Paragraph: The Legal letter begins with a formal greeting and an explanation of the purpose of the letter. It may also include the date of the audit and the reporting period.
• Responsibilities of Management: This section outlines the responsibilities of management in relation to the financial statements and the audit process. It confirms that management is responsible for the preparation and presentation of the financial statements in accordance with accounting principles, maintaining adequate internal controls, and providing the auditor with access to all relevant information.
• Representations: This is the main body of the letter, where management makes specific representations about various financial and non-financial matters. These may include statements about the completeness and accuracy of financial statements, compliance with laws and regulations, the absence of fraud, and the adequacy of internal controls.
• Closing Paragraph: The Contract letter concludes with a statement confirming that management has disclosed all relevant information to the auditor and that the representations made in the letter are true and accurate.

It is important to note that the management representation letter Format is a legal document and should be drafted with care. Management should review the letter carefully before signing it, as they are legally responsible for the accuracy of the information provided.

In addition to providing auditors with important information about the client’s business, the management representation letter can also serve as a valuable communication tool between management and the auditor . It can help to identify potential issues early in the audit process and facilitate a smoother and more efficient audit.

Management Representation Letter Format – Sample Format

Below is a Sample Format of Management Representation Letter Format:

[Your Company Letterhead]

[External Auditor’s Name]

[External Auditor’s Firm]

[Address Line 1]

[Address Line 2]

[City, State, ZIP Code]

Dear [External Auditor’s Name],

Re: Management Representation Letter

We appreciate the opportunity to work with your firm in connection with the audit of the financial statements of [Your Company Name] for the fiscal year ended [Date]. In connection with your audit, we are providing you with this representation letter.

We, the management of [Your Company Name], confirm the following representations:

• The financial statements have been prepared in conformity with the generally accepted accounting principles (GAAP) and present fairly the financial position, results of operations, and cash flows of the company.
• Management is responsible for establishing and maintaining effective internal control over financial reporting, and there have been no significant changes in the internal control over financial reporting that could have a material effect on the company’s ability to record, process, summarize, and report financial data.
• To the best of our knowledge, there has been no fraud or illegal acts that have materially affected or are reasonably likely to materially affect the financial statements.
• Except as disclosed in the financial statements or in the notes thereto, there are no pending or threatened legal actions, claims, or assessments that could have a material effect on the financial statements.
• All significant information and documentation related to the company’s operations and financial transactions have been made available to your firm.
• We have disclosed all significant events occurring after the balance sheet date that would require adjustment to, or disclosure in, the financial statements.

This representation letter is provided to you in connection with your audit of the financial statements of [Your Company Name] and should be read in conjunction with the auditor’s report. We acknowledge our responsibility for the design and implementation of internal controls to prevent and detect fraud, as well as the preparation of financial statements.

Please let us know if you need any further information or clarification. We appreciate your professional services and look forward to a successful audit.

[Your Name]

[Your Title]

[Your Company Name]

[Your Contact Information]

This is a general template for a management representation letter. Specific content may vary based on the company’s circumstances and the requirements of the external auditor. It is advisable to consult with legal and accounting professionals when preparing such letters.

Email Ideas about Management Representation Letter Format

Here’s an Email Ideas for Management Representation Letter Format:

Subject: Request for Management Representation Letter

Dear [Manager’s Name],

I am writing to request your assistance in providing a management representation letter format to complete our audit process. As you are aware, the management representation letter is a crucial document that provides written confirmation from management on the accuracy and completeness of financial statements and related disclosures.

The representation letter helps our auditors to obtain evidence in support of the financial statements and to obtain assurance that management has fulfilled its responsibilities. It also serves as a tool for our auditors to document the representations made by management during the course of the audit.

We would appreciate it if you could provide the management representation letter as soon as possible, but no later than [date]. We understand that the process of preparing this letter can take some time and we are available to discuss any questions or concerns you may have.

Please let us know if you need any further information or assistance in preparing the letter. We appreciate your cooperation and look forward to completing the audit process.

Thank you for your attention to this matter.

Management Representation Letter Format to Auditor

This letter, presented to auditors, formalizes the company’s commitments, affirming the accuracy of financial data, adherence to accounting standards, and cooperation with auditors to ensure a transparent and accurate audit process.

We appreciate the opportunity to collaborate with your firm for the audit of the financial statements of [Your Company Name] for the fiscal year ended [Date]. In connection with the audit, we are pleased to provide you with the following representations:

• The management of [Your Company Name] is responsible for the preparation and fair presentation of the financial statements in conformity with the generally accepted accounting principles (GAAP).

Should you require any further information or clarification, please do not hesitate to contact us. We appreciate your professional services and look forward to a successful audit.

This letter is a general format for a management representation letter to an auditor. Specific content may vary based on the company’s circumstances and the requirements of the external auditor. Always consult with legal and accounting professionals when preparing such letters.

Management Representation Letter Format to Bank

This Management Representation Letter Format serves to affirm the accuracy of financial information, adherence to credit terms, and compliance with agreements, fostering transparency in the company’s dealings with the bank.

[Bank Name]

[Bank Address Line 1]

[Bank Address Line 2]

Dear [Bank Manager’s Name],

Re: Management Representation Letter for Banking Purposes

We hereby provide this Management Representation Letter in connection with our banking relationship with [Bank Name]. This letter is to confirm certain representations to assist the bank in its assessment of our financial standing and creditworthiness.

• We confirm that the financial statements provided to the bank are prepared in accordance with generally accepted accounting principles (GAAP) and present fairly our financial position as of [Date].
• All information provided regarding our credit facilities, loans, and guarantees is accurate, complete, and reflective of our current financial obligations to the best of our knowledge.
• We confirm that we are in compliance with all terms and conditions outlined in our loan agreements, credit facilities, and any other financial arrangements with the bank.
• We have disclosed any material changes in our financial condition, business operations, or other relevant matters that may impact our ability to meet our financial obligations to the bank.
• There are no pending or threatened legal proceedings, disputes, or litigation that could materially affect our ability to fulfill our financial commitments to the bank.
• The undersigned individuals have the authority to provide these representations on behalf of the company, and all necessary corporate approvals have been obtained.

This Management Representation Letter is provided solely for the purpose of supporting our banking relationship with [Bank Name]. We acknowledge our responsibility to promptly inform the bank of any material changes that may affect the accuracy of these representations.

If you require any additional information or documentation, please do not hesitate to contact us. We appreciate your continued support and understanding.

This Management Representation Letter to the bank is a formal document confirming key financial and operational details. Customize it as needed based on your specific banking relationship and requirements.

Management Representation Letter Format – Template

Here’s a Template of Management Representation Letter Format:

[Company Letterhead]

[External Auditor Name] [External Auditor Address] [External Auditor City, State ZIP Code]

Dear [External Auditor Name],

We are pleased to provide you with this management representation letter in connection with the audit of our financial statements for the year ended [Date]. As management of [Company Name], we acknowledge our responsibility for the preparation and presentation of the financial statements in accordance with generally accepted accounting principles.

We confirm that we have provided you with all relevant information necessary for the audit and that we have disclosed all known or suspected fraud, illegal acts, or non-compliance with laws and regulations that may have a material effect on the financial statements.

We represent that the financial statements are complete and accurate, and that they fairly present, in all material respects, the financial position of [Company Name] as of [Date], and the results of its operations and cash flows for the year then ended.

We also confirm that the representations made in this letter are true and accurate as of the date of this letter.

[Your Name] [Your Title] [Your Company Name]

Management Representation Letter for External Audit

This letter reinforces the company’s commitment to transparency, providing essential assurances to external auditors regarding the accuracy of financial information and cooperation throughout the audit, crucial for ensuring the integrity of the audit process.

[Audit Firm Name]

[Audit Firm Address]

Re: Management Representation for the External Audit of [Company Name]

We, the undersigned management of [Your Company Name], hereby provide this letter to confirm certain representations in connection with the external audit of our financial statements for the fiscal year ending [Date].

• We confirm that the financial statements, including the balance sheet, income statement, and cash flow statement, present a true and fair view of the financial position of [Your Company Name] as of [Date].
• The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) [or International Financial Reporting Standards (IFRS)].
• We have established and maintained effective internal controls to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with applicable accounting standards.
• All significant information and disclosures related to our operations, financial position, and business transactions that may affect the understanding and interpretation of the financial statements have been disclosed to the best of our knowledge.
• All assets and liabilities, including contingent liabilities, have been properly recorded and disclosed in the financial statements.
• We have disclosed to you all known and potential legal claims, disputes, and litigations that may have a material impact on the financial statements.
• We acknowledge our responsibility to provide you and your team with complete access to all information and documents requested during the audit process.
• We confirm that there have been no changes in accounting policies or practices that materially affect the financial statements without appropriate disclosure.

This letter is provided solely for the purpose of supporting the external audit of our financial statements. We understand the importance of your audit in providing assurance to our stakeholders, and we commit to providing all necessary cooperation throughout the audit process.

If you require any additional information or clarification, please do not hesitate to contact us.

This Management Representation Letter for an external audit assures the auditor of the accuracy and completeness of financial statements, compliance with accounting standards, and cooperation during the audit process. Customize it as per your specific company and audit requirements.

Management Representation Letter to Investors

This letter serves as a transparent communication tool, instilling confidence among investors by affirming the company’s commitment to sound financial practices, compliance, and overall business stability.

[Investor’s Name]

[Investor’s Company/Organization]

[Investor’s Address]

Dear [Investor’s Name],

Re: Management Representation Letter to Investors

We, the undersigned management of [Your Company Name], are pleased to provide this letter to investors to affirm certain key aspects of our operations and financial position. This representation is made as of [Date] in connection with your investment in our company.

• We confirm that the financial statements provided to investors accurately represent the financial position of [Your Company Name] as of [Date]. The statements have been prepared in accordance with generally accepted accounting principles (GAAP) [or International Financial Reporting Standards (IFRS)].
• The management assures investors that the operational performance of the company is in line with the disclosed business plans and strategies. Any material changes have been duly communicated.
• We confirm that the company is in compliance with all applicable laws and regulations relevant to its operations. Any deviations have been appropriately addressed or disclosed.
• All material contracts and agreements that may impact the company’s financial position have been accurately disclosed to investors. There have been no material breaches of these contracts.
• The management has disclosed all known risk factors that may materially affect the company’s financial position or future prospects. We are committed to proactive risk management.
• Funds invested by our esteemed investors have been utilized in accordance with the stated purposes and business plans as communicated during the investment process.
• Any forward-looking statements made by the management are based on reasonable assumptions. However, actual results may vary, and the company is not obligated to update these statements.
• The management is dedicated to maintaining open lines of communication with investors. Any significant developments or changes in the company’s status will be promptly communicated.

This letter is intended to provide additional assurance and transparency to our valued investors. We appreciate your trust in [Your Company Name] and remain committed to creating value and fostering a mutually beneficial partnership.

If you have any questions or require further clarification, please do not hesitate to contact us.

This Management Representation Letter to Investors affirms key aspects of the company’s financial position, operational performance, and commitment to transparency, providing reassurance to investors about their investment in the company. Customize it as per your specific company and investor relations.

Management Representation Letter to Regulators

This letter serves as a formal commitment from the company’s management to regulatory bodies, ensuring transparency, accountability, and adherence to regulatory requirements, thereby fostering trust and regulatory compliance.

[Regulatory Authority Name]

Subject: Management Representation Letter

Dear [Regulatory Authority Name],

Re: Management Representation for Compliance with [Applicable Laws/Regulations]

We, the undersigned management of [Your Company Name], hereby provide this letter to confirm our commitment to compliance with all applicable laws, regulations, and industry standards under the jurisdiction of [Regulatory Authority Name].

• We affirm that our company operates in full compliance with all relevant laws and regulations governing our industry and business operations.
• The financial statements of [Your Company Name], including the balance sheet, income statement, and cash flow statement, have been prepared in accordance with applicable accounting standards, providing a true and fair view of the company’s financial position.
• We have established and maintained effective internal controls to ensure the accuracy and reliability of financial reporting and compliance with regulatory requirements.
• All material information, events, and transactions that may affect the company’s compliance status or financial position have been transparently disclosed.
• We commit to timely and accurate filing of all required reports, statements, and documentation as per the regulations enforced by [Regulatory Authority Name].
• We acknowledge our responsibility to fully cooperate with any regulatory inspections or inquiries that may arise, providing all necessary information and documentation as requested.
• Our management is dedicated to continuous improvement in our compliance practices, ensuring that we stay abreast of any changes in laws or regulations that may impact our business.

This letter is provided for the purpose of assuring [Regulatory Authority Name] of our dedication to compliance and transparent business practices. We understand the importance of regulatory oversight in maintaining market integrity and protecting the interests of stakeholders.

This Management Representation Letter to Regulators emphasizes the company’s commitment to compliance with applicable laws and regulations, providing assurance to regulatory authorities and fostering transparency in business operations. Customize it based on your specific company and regulatory requirements.

Management Representation Letter Format – Example

Here’s an Example of Management Representation Letter Format:

As management of [Company Name], we acknowledge our responsibility for the preparation and presentation of the financial statements in accordance with generally accepted accounting principles. We understand that you will be conducting an audit of our financial statements for the year ended [Date].

We confirm that we have disclosed all known or suspected fraud, illegal acts, or non-compliance with laws and regulations that may have a material effect on the financial statements. We also confirm that we have provided you with access to all relevant information necessary for the audit.

We understand that this letter is a legal document and that we are responsible for the accuracy of the information provided. We confirm that the representations made in this letter are true and accurate as of the date of this letter.

Management Representation Letter Format – Example 

Formal Management Representation Letter Format

This Management Representation Letter Format serves to provide external auditors with essential assurances from management regarding the accuracy and completeness of financial information, adherence to legal and regulatory requirements, and the effectiveness of internal controls.

Re: Management Representation for [Year/Period] Ended [End Date]

We, the undersigned management of [Your Company Name], are providing this letter to confirm certain representations made to you during the audit of our financial statements for the [Year/Period] ended [End Date].

• We acknowledge our responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework.
• To the best of our knowledge and belief, the company has complied with all relevant laws and regulations that may materially affect the financial statements.
• We have established and maintained effective internal control over financial reporting, and any identified deficiencies have been disclosed to you.
• We have made you aware of any known or suspected instances of fraud or illegal acts affecting the company.
• All related party transactions have been accurately identified, disclosed, and recorded in accordance with the applicable financial reporting framework.
• We have disclosed to you all known actual or potential litigation and claims that may have a material effect on the financial statements.
• We have assessed the company’s ability to continue as a going concern and disclosed any uncertainties related to going concern appropriately.
• The information provided to you during the audit is complete and accurate, and we have disclosed all significant matters relevant to the financial statements.

This representation is provided to assist you in obtaining reasonable assurance that the financial statements are free from material misstatement. If there are any additional matters or information you require, please contact us promptly.

We appreciate your professional services and look forward to a successful completion of the audit.

This Formal Management Representation Letter Format is designed to provide external auditors with assurances on various aspects related to financial statements, compliance, internal controls, and more. Customize it based on your specific company and audit requirements.

Fraud and Illegal Acts Representation Letter

This letter underscores the company’s dedication to integrity and transparency, outlining measures taken to prevent and address fraudulent activities, and providing assurances to external auditors regarding compliance with legal and ethical standards.

Subject: Representation Regarding Fraud and Illegal Acts

Re: Fraud and Illegal Acts Representation

We, the undersigned management of [Your Company Name], hereby provide this representation regarding the prevention, detection, and reporting of fraud and illegal acts within the organization for the [Year/Period] ended [End Date].

• We acknowledge our responsibility for the prevention and detection of fraud and illegal acts within the organization.
• We have established and maintained internal controls and procedures designed to prevent and detect fraud and illegal acts.
• Employees are provided with adequate training and awareness programs to understand the risks associated with fraud and illegal acts and are encouraged to report any concerns through appropriate channels.
• We have communicated ethical standards and expectations to all employees, emphasizing our commitment to conducting business with integrity and in compliance with applicable laws and regulations.
• Any known or suspected instances of fraud or illegal acts are promptly reported to the appropriate levels of management and, if necessary, to the board of directors.
• In the event of identified fraud or illegal acts, we conduct thorough investigations and implement remedial actions, including disciplinary measures and corrective measures to prevent recurrence.
• We have established mechanisms to protect whistleblowers from retaliation and encourage the reporting of concerns without fear of reprisal.
• We commit to cooperating fully with external authorities, including law enforcement agencies and regulatory bodies, in the investigation of fraud or illegal acts.
• All representations made to you regarding the prevention, detection, and reporting of fraud and illegal acts are accurate and complete.

This representation is provided to assist you in obtaining reasonable assurance that the financial statements are free from material misstatement, including those resulting from fraud or illegal acts.

If you have any questions or require further clarification on any matters related to fraud and illegal acts, please do not hesitate to contact us.

This Fraud and Illegal Acts Representation Letter is designed to assure external auditors of the company’s commitment to preventing, detecting, and reporting fraud and illegal acts. Customize it based on your specific company policies and procedures.

FAQS About Management Representation Letter Format, What is It, Examples

What is a management representation letter format.

A Management Representation Letter Format is a formal document issued by a company’s management to external auditors, confirming certain representations related to financial statements, compliance, internal controls, and other crucial aspects during an audit.

What is the Purpose of a Management Representation Letter Format?

The primary purpose is to provide external auditors with written representations from management regarding various aspects of the company’s operations. Management Representation Letter Format helps auditors obtain assurance on the accuracy and completeness of financial information and other relevant matters.

What Information is Typically Included in a Management Representation Letter Format?

The Management Representation Letter Format typically includes representations related to financial statements, compliance with laws and regulations, internal controls, fraud and illegal acts, related party transactions, litigation, and the going concern assumption.

Why is a Management Representation Letter Format is Important in an Audit?

The Management Representation Letter Format is crucial as it formalizes management’s acknowledgment of its responsibilities and provides auditors with assurances on key matters. It enhances the audit process by obtaining explicit confirmations from management regarding the information and processes being audited.

Is a Management Representation Letter Standardized?

While there are common elements, the letter is often customized to suit the specific circumstances and requirements of the company and the audit. It may vary in content based on industry practices, regulatory requirements, and the auditor’s specific requests.

Are There Risks Associated with Providing Management Representation Letter Format?

Yes, Management Representation Letter Format, there are risks, and management should carefully consider the accuracy of the representations made. Providing false or misleading information in the representation letter can have legal and financial consequences.

The Management Representation Letter Format is a formal document that serves as an important part of the audit process . It outlines the responsibilities of management and makes specific representations about various financial and non-financial matters. The Management Representation Letter Format should be carefully reviewed and signed by management to ensure that the information provided is accurate and complete .

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Letters of representation

Helpsheets and support

Published: 01 Oct 2012 Updated: 24 Jan 2022 Update History

Introduction

Requirement, audit engagements, non-audit engagements, example letter of representation, if in doubt seek advice, appendix 1: example letter of representation.

Technical helpsheet to help ICAEW members to understand the need for letters of representation in the context of auditing and to consider other situations where a letter of representation may be useful. To assist members in the preparation of letters of representation, this helpsheet also includes an example letter.

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members to understand the need for letters of representation in the context of auditing and to consider other situations where a letter of representation may be useful. To assist members in the preparation of letters of representation, this helpsheet also includes an example letter.

Members may also wish to refer to the following related guidance:

• TECH 04/02 AAF Management representation letters: Explanatory note
• International Standards on Auditing (UK)

A word version of the sample letter of representation wording  is available to download and complete.

Written confirmation(s) of representations from management is a requirement of the International Standards on Auditing (UK) (ISAs (UK)) and is therefore required for each and every audit. They are also useful to confirm, in writing with clients, information, assumptions and accounting treatments in non-audit engagements.

A number of ISAs (UK) require written representations to be obtained from management. These must be obtained as near as practicable to, but not after, the date of the auditor’s report (ISA (UK) 580 paragraph 14) in the form of a letter addressed to the auditor (paragraph 15).

Representations are requested from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned. In the UK, those charged with governance are responsible for the preparation of the financial statements.

Letters of representation can be, and often are, signed by more than one member of the audited entity’s staff – the auditor needs to make an assessment as to who is in the best position to provide the representations required. ISA (UK) 580 requires written representations from management that:

• It has fulfilled its responsibility for the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation, as set out in the terms of the audit engagement (paragraph 10);
• It has provided the auditor with all relevant information and access as agreed in the terms of the audit engagement (paragraph 11(a)); and
• All transactions have been recorded and are reflected in the financial statements (paragraph 11(b)).

As well as the written representations required in ISA (UK) 580, the following ISAs (UK) require subject-matter specific written representations – reference should be made to the particular ISA (UK) for the full text of the requirements:

• ISA (UK) 240 (Revised May 2021) The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements (paragraph 39);
• ISA (UK) 250 (Revised November 2019) Section A – Consideration of Laws and Regulations in an Audit of Financial Statements (paragraph 17);
• ISA (UK) 450 (Revised June 2016) Evaluation of Misstatements Identified during the Audit (paragraph 14);
• ISA (UK) 501 Audit Evidence – Specific Considerations for Selected Items (paragraph 12);
• ISA (UK) 540 (Revised December 2018) Auditing Accounting Estimates and Related Disclosures (paragraph 37);
• ISA (UK) 550 Related Parties (paragraph 26);
• ISA (UK) 560 Subsequent Events (paragraph 9);
• ISA (UK) 570 (Revised September 2019) Going Concern (paragraph 12-2(f));
• ISA (UK) 710 Comparative Information – Corresponding Figures and Comparative Financial Statements (paragraph 9); and
• ISA (UK) 720 (Revised November 2019) The Auditor’s Responsibilities Relating to Other Information (paragraph 13(c)).

In addition, paragraph A25 of ISA (UK) 500 Audit Evidence highlights that the auditor may consider it necessary to obtain written representations from management and, where appropriate, those charged with governance to confirm responses to oral enquiries.

Auditors should be reminded that written representations cannot be used as sole audit evidence in relation to any specific area of the financial statements. Written representations should be used as corroborative evidence in order to support existing audit evidence, rather than as a substitute for the auditor performing specific audit procedures to obtain sufficient appropriate audit evidence.

Accounts production

Members preparing accounts, without carrying out an audit, may also find it useful to obtain written representations from their clients. Obtaining such representations is useful to emphasise the importance placed on information provided by management in order for the member to undertake the work. In particular, where the work involves the preparation of statutory accounts and there are disclosure requirements that rely on information received from management (for example, post-balance sheet events or related party transactions), this would be appropriate.

Where a firm has prepared the accounts for a client and based those accounts on assumptions and decisions made by management then the firm may wish to confirm the treatment of particular transactions or balances in writing in a letter of representation. For example, movements in a directors’ loan account.

Tax compliance

Obtaining written representations could also be appropriate in other circumstances, for example when undertaking tax computations, where information supplied is crucial to the computation and has not been independently corroborated.

The goodwill or value of a block of clients is often based on the fees or profits they can generate. Bases usually start from the fees or profits that can be generated from the current services supplied to the clients and then apply a multiple to them to obtain the value.

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• Work in progress

Due diligence

For a deal to be successful the 'fit' of the fees with the buyer will need to be established. At the outset of negotiations often all that is available is a total fee figure and details of numbers of clients in certain fee brackets with an indication of the services provided and the location of the clients. Far more detail needs to be obtained during the negotiation phase. How this information is obtained varies but at some stage the buyer would expect to see client files, accounts, fee notes etc. and where staff are involved, meet with and talk to them.

The seller will need to ensure that the fundamental principle of confidentiality as discussed in section 114 of the ICAEW Code of Ethics  is adhered to and the authority of the client would usually be required prior to disclosing client confidential information. It is normal before detailed information is disclosed that a confidentiality and non-poaching agreement is formally documented between buyer and seller. Such an agreement should also include a 'hold-harmless' clause whereby the buyer agrees not to use any information obtained against the interests of the seller.

The following are some of the matters to be considered when undertaking due diligence information gathering:

• Confirmation of information and detail
• Fee levels and charging structure
• Quality of work and files
• Profitability and overheads

A period of working together, alongside each other or in cooperation or collaboration could be agreed. The arrangements can vary considerably and will be particular to each individual’s circumstances. The arrangements should be able to be terminated without either party suffering substantial loss.

The example in Appendix 1 to this helpsheet deals specifically with those matters that are required to be confirmed by the ISAs (UK), together with other common representations obtained. It is based on the example in Appendix 2 of ISA (UK) 580.

In addition, the letter of representation should include confirmations from management on matters material to the financial statements in order to support other audit evidence obtained. In particular, where amounts are included in the accounts based on management estimates or valuations (such as property or stock values), it would be appropriate to include written confirmations.

It is not current best practice to include a long list of representations about assets and liabilities included in the accounts. Such paragraphs can detract from the impact of the more important matters, and in the case of an audit should be confirmed by adequate audit evidence.

Within the specimen letter of representation, guidance and instruction are shown in italics . None of this italicised text is for inclusion in the letter of representation. Members need to ensure it has been sufficiently tailored and all italicised text has been removed, before it is sent to client’s management for them to print on their own letterhead and sign as appropriate and then return to the firm. In some paragraphs, optional or alternative wording has been provided, shown in [square brackets] and each suggestion requires individual consideration and possible amendment.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access  can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat .

• Download the sample letter of representation wording

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ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.

ICAEW members have permission to use and reproduce this helpsheet on the following conditions:

• This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only.
• The helpsheet is to be reproduced for personal, non-commercial use only and is not for re-distribution.

For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas .

• Update History 01 Oct 2012 (12: 00 AM BST) First published 08 Jan 2021 (10: 40 AM GMT) Updated to reflect requirements of the revised ISAs. 05 Jan 2021 (12: 00 AM GMT) Minor edits relating to Brexit / updated regulations. Links updated. 24 Jan 2022 (01: 55 PM GMT) Changed date of latest version of ISA (May 2021). Date of specimen letter updated to match helpsheet

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