Management Representation Letter Example

As discussed on my previous post [Audit Process for Nonpublic Audits] that SAS No. 85, “Management Representations” (AU 333), requires that the auditor obtain written representations from management. Here I post a management representation letter example.

 

Anonymous Company, Inc.

[Date]

 

To [Independent Auditor]

 

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

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

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

1. The financial statements referred to above are fairly presented in conformity with generally accepted accounting principles.

2. We have made available to you all—
a. Financial records and related data
b. Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared.

3. There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.

4. There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements.

5. There has been no—
a. Fraud involving management or employees who have significant roles in internal control.
b. Fraud involving others that could have a material effect on the financial statements.

6. The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.

7. The following have been properly recorded or disclosed in the financial statements:
a. Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties.
b. Guarantees, whether written or oral, under which the company is contingently liable.
c. Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA’s Statement of Position 94-6, ‘‘Disclosure of Significant Risks and Uncertainties.’’

8. There are no—
a. Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.
b. Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, ‘‘Accounting for Contingencies.’’
c. Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5.

9. The company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.

10. The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

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

 

[Name of Chief Executive Officer and Title]

 

[Name of Chief Financial Officer and Title]

Author: Lie Dharma Putra

Putra is a CPA. His last position, in the corporate world, was a controller for a corporation in Costa Mesa, CA. After spending 15 years as a nine-to-five employee, he decided to serve more companies, families and even individuals, as a trusted business advisor. He blogs about accounting, finance and tax, during his spare time, and helps accounting students (around the globe) to understand the subject matter easier , faster. Follow him on twitter @LieDharmaPutra or add him to your circle at Google Plus Lie+

19 thoughts on “Management Representation Letter Example”

  1. Good Evening Dayah,
    There is no exact limition on to when [what] the exact date of the management representation letter. While some auditors gives more flexibility and still accept the letter to be presented anytime during the course of the audit process, it is worth advising that the earlier you can obtain the letter is the better. Ideally; it is attached on the financial reports [datas] surrendered by the management.

  2. May,

    As the name its says; management representation letter expresses the official management’s statement and overview on what and how the financial statements [datas] are presented on the reports, despite what the truth is. Ofcourse, it is expected to be true 🙂 Absent of this letter could turn auditor’s opinion to worse.

    When it is true, auditor should have a better picture about the report presented, and it could be the best starting point for auditors to dig more into the data and audit evidences.

  3. Question about signing a mgmnt rep letter: is it customary for the controller of a subsidiary to sign a “consolidated” rep letter for the audited parent company? The consolidated rep letter has space for representatives of all subsidiaries to sign the letter (in addition to upper management of the audited parent company).

    The sub will receive a stand-alone audit.

    Thanks.

  4. I have a question. What recourse does the auditor have if a CFO leave a company and refuses to sign the representation letter even though he was the CFO for the period being audited?

  5. Andy,

    Management representation letter may be signed by other management representatives in the case that a CFO isn’t exist, as long as he/she has enough authority to represent the management for the period being audited.

  6. i have a question. the management representation letter is dated as the audit report’s date, then when should we send the letter? is it on the same date ?

  7. I’m both a CPA and CFO of a family held business. The principals have run through expense about $800,000 of personal expenses during the year.
    I’m being asked to sign the audit rep letter in order to get the audit released.

    While the Company is still reasonably profitable, it is a material understatement of income….and of course an understatement of the Company’s tax liability.

    If I whistle blow this to the independent accountants, I’ll have a “reputation” follow me to other jobs…. Any ideas ?????

  8. A management representation letter is required at the end of a financial statement audit. The date of the letter must agree to the date of the auditor’s opinion.

  9. ‘Receivables reported in the interim financial information represent valid claims against debtors for sales or other charges arising on or before the balance-sheet date’

  10. Putra, what do you think of this rep

    ‘Receivables reported in the interim financial information represent valid claims against debtors for sales or other charges arising on or before the balance-sheet date’

  11. My question is this:what is the auditor supposed to do if the management fails to issue a letter of representation?Again is the letter of representation similar to an acknowledgement letter sent by the management after receipt of the letter of engagement by the audit firm?

  12. Hi Putra,

    I have a question. As you show us is standard of representation letter, what is the representation letter look like if we only want them to confirm only asset?

  13. If there are items from Boutique taken by the owner and gave all them to her staffs. How do I treat that in accounting.thank you very much

  14. If company A was acquired by company B one month before end of company A’s financial year. The new director was appointed from company B only after end of financial year, who should sign on the representaion letter?
    Thks for the advise.

  15. My question is this:what is the auditor supposed to do if the management fails to issue a letter of representation?Again is the letter of representation similar to an acknowledgement letter sent by the management after receipt of the letter of engagement by the audit firm?

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