Management Representation Letter
A Management Representation Letter is a document written by the management of a company and provided to its auditors. This letter is part of the audit process and it’s typically required at the end of an audit engagement.
The purpose of a Management Representation Letter is to confirm the accuracy and completeness of the information that management has provided to the auditors. It’s a formal acknowledgement that the financial statements and other related information are true, complete, and correctly presented to the best of the management’s knowledge.
The letter covers various items including:
- Assertions: Management confirms that all financial records, data, and other relevant information have been made available to the auditor and are complete and accurate.
- Fraud and Irregularities: Management confirms that they have disclosed any known frauds or suspected frauds affecting the company, as well as any allegations of fraud or suspected fraud.
- Laws and Regulations: Management asserts that the company has complied with all laws and regulations that could have a significant effect on the financial statements.
- Subsequent Events: Management provides information on any events after the balance sheet date that may need to be disclosed in the financial statements or notes.
- Unrecorded Liabilities : Management asserts that there are no material liabilities, contingent or otherwise, that are not disclosed in the financial statements.
The Management Representation Letter helps the auditor obtain written confirmation of representations from management, which can be crucial when forming an audit opinion. It’s worth noting that while this letter is important, it does not relieve the auditor of the responsibility to gather sufficient appropriate audit evidence to form an audit opinion.
Example of a Management Representation Letter
Here is an illustrative example of what a Management Representation Letter might look like. Please note that actual letters would be more detailed and would vary depending on the specifics of the company and the audit.
[Auditor’s Name and Address]
Dear [Auditor’s Name],
In connection with your audit of the financial statements of [Company’s Name] as of [Financial Year End Date], and for the year then ended, we confirm, to the best of our knowledge and belief, the following representations:
- We have made available to you all financial records and related data, as well as all minutes of meetings of shareholders and the board of directors and its committees.
- We believe that the effects of uncorrected financial statement misstatements aggregated by you during the audit are immaterial, both individually and in the aggregate, to the financial statements as a whole.
- There have been no irregularities involving management or employees who have significant roles in internal control or that could have a material effect on the financial statements.
- We have complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of noncompliance.
- There have been no events subsequent to the balance sheet date that would require adjustment to, or disclosure in, the financial statements.
[Chief Executive Officer]
[Chief Financial Officer]
Again, this is just a basic example. A real Management Representation Letter would be tailored to the specific situation and would cover all areas that are relevant to the audit.