Management representation letter

Management representation letter is a specialized letter issued by a company to external auditors. Purpose of this document is to confirm the accuracy of financial statement that company had submitted to the auditors for verification .

These statements from part of the audit evidence, but they do not replace other necessary control procedures that are confirmed by these statements .

Preparation of the management representation letter

During the integrated audit, the management provides various informations to the external auditor. At the end of the audit, the auditor must obtain written declarations from the management. These statements relate to certain issues that relate to internal control over financial statements, but also financial reporting .

The management representation letter :

• is prepared on letterhead,
• it must be addressed to the auditor,
• must be signed by persons responsible for financial and operational matters.

Most often the responsibility is borne by a CEO or CFO. The management representation letter should be dated at the latest on the day of the auditor is report . These are serval elements that should be included in the management representation letter .

The purpose of the management representation letter

The purpose of the management representation letter is :

• remaining the management of it is responsibilities in the area of internal control over the financial reporting,
• remaining the management of it is responsibilities in the area of internal control over the financial statements,
• reducing the level of misunderstandings by requiring management to make a statement and provide oral statements in writing.

Examples of Management representation letter

• We, [Name of company], hereby affirm that the financial statements and information provided to you for the year ended [date], are accurate and complete in all material respects.
• We confirm that all transactions have been properly authorized, recorded and disclosed in the financial statements.
• We affirm that all assets, liabilities, revenues and expenses have been recorded in accordance with generally accepted accounting principles.
• We confirm that all relevant information and records related to the financial statements have been disclosed to you.
• We affirm that all relevant internal controls and policies have been effectively implemented and followed.
• We acknowledge that you are not responsible for the accuracy or completeness of the financial statements or the information provided to you.
• We confirm that all relevant taxes have been paid and that any relevant tax returns have been filed on time.
• We affirm that no material changes have been made to the financial statements since the end of the reporting period.
• We acknowledge that you have the right to perform an independent audit of the financial statements.
• We confirm that none of the information provided is misleading or false in any way.

Advantages of Management representation letter

Management representation letter is an important document for external auditors to verify the accuracy of financial statements submitted by the company. The following are the advantages of this letter:

• It provides assurance to the external auditors that the financial statements are free from any material misstatement or misrepresentation.
• It serves as evidence that the company has disclosed all the necessary information to the auditors.
• It helps to reduce the risk of possible future litigation by providing the auditors with a detailed confirmation of the financial statement.
• It helps to create a healthy relationship between the company and the external auditors.
• It helps to improve the credibility and accuracy of the financial statements.

Limitations of Management representation letter

Management representation letter has certain limitations, including:

• It cannot be used to verify the accuracy of financial statements. It is only meant to confirm what has already been reported by the company.
• It cannot be used to confirm the information provided in the financial statements. It is not an audit opinion.
• It does not provide assurance that the financial statements are free from material misstatement.
• It cannot be used to confirm the accuracy of the financial statements’ underlying data or the assumptions used in the preparation of the financial statements.
• It cannot be used to provide assurance regarding the completeness of information presented in the financial statements.
• It does not provide assurance that the company is in compliance with applicable laws and regulations.

Other approaches related to Management representation letter

A Management Representation Letter is a specialized letter issued by a company to external auditors. This document is used to confirm the accuracy of financial statements that have been submitted to the auditors for verification. Other approaches related to Management Representation Letter include:

• Internal Audit: This approach is used to independently assess and examine the accuracy of financial statements. Internal auditors are employed to identify errors, inconsistencies, or irregularities in the financial statements.
• Analytical Review: This approach involves the use of analytical procedures to identify discrepancies in the financial statements. This involves the use of trend analysis, ratios, and other data analysis methods.
• Documentation Review: This approach involves a review of the documentation that supports the financial statements. This includes a review of contracts, invoices, and other supporting documents.
• Physical Inspection: This approach involves a physical inspection of the company's assets, such as inventory or property. This allows the auditors to confirm the accuracy of the information presented in the financial statements.

In summary, Management Representation Letter is a specialized letter issued by a company to external auditors in order to confirm the accuracy of financial statements. There are several other approaches related to Management Representation Letter, such as Internal Audit, Analytical Review, Documentation Review, and Physical Inspection.

Footnotes

Management representation letter — recommended articles

Focus report — Minute book — Prior period adjustments — Accounting manual — Accounting documents — Internal audit — Accounting and auditing — Stock ledger — Audit evidence

References

• Beasley M.S., Carcello J.V., (2009) GAAS Guide 2009: A Comprehensive Restatement of Standards for Auditing, Attestation, Compilation, and Review CCH a Walters Kluwer business
• Boyd K.W., (2014) CPA Exam For Dummies John Wiley&Sons, Inc.
• Bragg S., (2018) Management representation letter
• Bruke F.M., Guy D.M., Tatum K.W., (2008) Audit Committees: A Guide For Directors, Management, and Consultants. Fifth Edition CCH a Wolters Kluwer business
• Crumbley D.L., Rezaee Z., Ziegenfuss D.E., (2004) U.S. Master Auditing Guide. Third Edition CCH Incorporated
• Get Through Guides, (2007) ACCA: For Exams in December 2007 and June 2008 Get Through Guides

Author: Anna Lipowiecka-Migdał