management representation letter format icai 2021

Appendix II: Illustrative Management Representation Letter ​

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

(Entity Letterhead)

(To Auditor) (Date)

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

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

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

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

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

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

a. (brief of deficiencies)

b. (brief of the impact)

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

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

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

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

We have provided you with:

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

Additional information that you have requested from us;

Unrestricted access to those within the entity.

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

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

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

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

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

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

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

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

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

For and on behalf of ABC Company Limited

__ (Signature) Name and Designation

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Detailed Format of a Management Representation Letter

Format of a management representation letter (mrl).

Chartered Accountants Dear Sirs, This representation letter is provided in connection with your audit of the financial statement of M/s. …….for the year ended 31st March 2020 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of M/s. …….as of 31st March 2020 and of the results of operations for the year then ended. We acknowledge our responsibility for the preparation of financial statements in accordance with the requirements of the other relevant statute and recognized accounting policies and practices, including the accounting standards issued by The Companies Act 2013/ The Institute of Chartered Accountants of India.

We confirm, to the best of our knowledge and belief, the following representations; General ___________________________ 1. Ours ‘…….is a limited company incorporated under the Companies Act, 1956/2013 bearing Regn. No CIN: ……………..dated …….. as Private Limited Company and converted into Public Limited Company on ………….. A copy of the Memorandum & Articles of Association is already with you. 2. Following persons are the members of the Board of Directors of the Company as on date:- Name of Director:- Designation;- Director Date of appointment Name of Director:- Designation; – Director Date of appointment Name of Director:- Designation; – Director Date of appointment Name of Director:- Designation;- Director Date of appointment Name of Director:- Designation;- Director Date of appointment 3. The Company has obtained all registrations/licenses required to run the business. 4. So far the Company had filed I.T. Return for the FY ending March …… No income tax return has been filed by the Company after the AY . PAN of the Company is ……. There are no demands/ appeals pending or details of appeals/demands pending are as under:- All the Statutory Compliance like VAT, Service Tax, GST, PF, ESIC, etc, has been paid timely and there is no default there, except the following:

5. We have maintained the following books of account:-

(a)Cash book (b) Bank Book (c) Ledger (d) Journal All the books have been kept on the computer and printouts are taken on a monthly/yearly basis as per needs. All the aforesaid books have been kept and maintained at the corporate office of the Company. 6. We enclose herewith a copy of final accounts for the year-ended ……… duly approved by the Board of Directors of the Company, for your perusal and doing the needful.

Related Topic: Private Company – Specimen Audit Report March 2020

7. Significant Accounting Policies

a) Basis of preparation The financial statements are prepared on an accrual basis under the historical cost convention, in accordance with the generally accepted accounting principles (Indian GAAP) to comply with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year. b) Use of estimates The preparation of financial statements in conformity with the Indian GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognized in the periods in which the results are known/materialize. c) Revenue recognition Revenue is recognized on an “accrual” basis at the fair value of the consideration received or receivable net of applicable taxes, trade discounts, and customer returns. d) Secured Loans 1) The term loan from Financial Institutions i.e. ……….. are secured by the first charge ranking parri-passu in each case with the others by way of Equitable Mortgage by the deposit of the deeds in respect of the land situated ………………………. & by hypothecation of all the movable (save and except book debts) including immovable machinery, spares & accessories, Both present and future, subject to prior charge created in favour of the company’s banker on stock of raw material, semi-finished goods, finished goods & consumable stores and book debts for securing the cash credit for the working capital requirement. 2) All loans are guaranteed by all the promoters/shareholders of the company. e) Fixed assets Fixed assets are carried at cost less accumulated depreciation and impairment losses if any. The cost of fixed assets includes interest on borrowings attributable to the acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. f) Depreciation / amortization All the Company’s fixed assets including Intangible assets are depreciated on the basis of the Written Down method over the estimated useful life of the asset as per the provisions of the Companies Act, 2013. Leasehold improvements, Office Equipments, Furniture & Fixtures & Software are amortized over the useful life of the assets as specified under Company’s Act 2013. g) Foreign exchange transactions Transactions in foreign currency are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency prevailing on the date of the transaction. Monetary items denominated in foreign currency are restated at the rates prevailing on the balance sheet date. Non-monetary items denominated in foreign currency which are carried at historical cost are reported using the exchange rate at the date of the transaction. Exchange differences arising on the settlement of monetary items or on reporting company’s monetary items at rates different from those at which they were initially recorded during the year or reported in the previous financial statements are recognized as income or expense in the year in which they arise. h) Earnings per share Basic earnings/loss per share is calculated by dividing net profit/loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. i) Taxation Tax expense comprises current tax and deferred tax. Current tax is determined as the amount of tax payable in respect of taxable income for the year. The provision for current income-tax is recorded based on assessable income and the tax rate applicable to the relevant assessment year. Minimum Alternate Tax (MAT) credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in the guidance note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the profit and loss account and shown as MAT credit entitlement. The Company is carrying/carrying any business since …….. Income Tax Returns have been/not been filed from AY ……. There is no reasonable certainty of the realization of future profits based on the Profits & Loss Account of the earlier years. Therefore, no provision for Deferred Tax has been made under the prevailing circumstances. j) Investments: Long term investments are carried at cost after providing for any diminution in value if such diminution is of a permanent nature. Current investments are carried at lower of cost or market value. k) Loans & Advances Security deposits with of Rs. – will be adjusted by the …………… against the outstanding bill ………………………..hence not recoverable. l) Inventories: There are no inventories in the Balance Sheet. m) Borrowing Cost: Interest and other financing costs relating to borrowed funds attributable to the construction or acquisition of fixed assets have been capitalized to the extent if they relate to the period up to which the asset was ready to use (As per AS-16). All other borrowing costs are charged to revenue. n) Employee Benefits:

LEAVE ENCASHMENT

There are ………/s no employee. Accordingly, provisions have been made as per AS-15../hence this clause is not applicable. PROVIDENT FUND REgular in payment of dues/There is no employee hence this clause is not applicable. GRATUITY There are …… employees/is no employee hence this clause is not applicable. Provision made on the basis of actuarial valuation o) CONTINGENT LIABILITIES: A) Corporate Guarantees B)Capital Commitments .. The company has become a sick company within the meaning of clause (o) of sub-section 1 of section 3 of the sick industrial companies (special provision) act, 1985. The matter under consideration at BIFR/AIIFR for the revival process has been rejected by the Hon’ble BIFR. The interest of Rs…………. has not been provided on the term loans of …………..because OTS (ONE TIME SETTLEMENT) has been revoked due to nonpayment as per the OTS scheme. However, interest has been provided on the term loan of ……………… as per OTS Settlement and statement of account provided by the ……………….. B) The sales tax authorities have raised a demand of Rs ………………………The above demand is not acceptable and it has been challenged by the Company in Appeal. The appeal is pending before the authorities. Although the company has provided a liability of Rs. …………- in the books of accounts but from the prevailing circumstances the amount of Rs. ……………… appears to be a contingent liability.

8 NOTES ON ACCOUNTS

Micro and Medium Scale Business Entities: There are no Micro, Small, and Medium Enterprises, to whom the company owes dues which are outstanding for more than 45 days as at 31st March 2020. This information as required to be disclosed under the Micro, Small and Medium Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company. B The Company is a Small and Medium-Sized Company (SMC) as defined in the General Instructions in respect of Accounting Standard notified under the Companies Act, 2013, accordingly, the company has complied with the accounting standard as applicable to a Small and Medium-Sized Company. C In the absence of confirmation from the parties the debit & credit balances in respect of Security Deposits and have been taken as reflected in the books. Balance appearing under the heads Current Assets, Loans and Advances, and Current Liabilities are subject to confirmation. D In the opinion of the Board of Directors of the company, the current assets, loans, and advances have the value at least equal to the figures stated in the Balance Sheet on realization in the ordinary course of business and provision for all determinable/known liabilities have been made in the accounts when reliable estimates can be made of the amount of obligation. F Previous year Figures have been reworked, regrouped, re-arranged, and reclassified wherever considered necessary to make them comparable with current year’s figures. G There has been no default except Default of Principal repayment and interest repayment on Long Term Borrowings from ……………….. The figures have been quantified in the balance sheet.

i. There have been no irregularities involving management or employees who have a significant role in the system of internal control that could have a material effect on the financial statements. ii. The financial statements are free of material misstatements, including omissions. iii. We have complied with all the relevant provisions of the statute as applicable to us and our records and minutes in this respect are up to date and are open for inspection in the course of your audit. iv. The company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of noncompliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance. v. We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements. vi. All the loans or depositor repayment thereof was made by account payee Cheques or demand draft only. vii. In term of section 22 of the micro, Small & Medium Enterprises Development Act, 2006: Sundry Creditors of the Company: Rs.NIL Interest Paid to them: Rs. NIL viii. We have complied with tax provisions in respect of the deduction of TDS. ix. All the payments in the respect of any revenue item has been made in compliance with the provisions of section 40(A)(3) of the Income Tax Act 1961. x. Details of all immovable Properties Purchased/Sold during the years are as below: Details Purchase/Sale Amount Value as per stamp duty act NIL NA NA NA

10. General Affirmations

· The Cash balance as on 31/03/2020 has been physically verified by the management at Rs. · The company has not given any guarantee for loans taken by others from banks or financial institutions. · We confirm that no short-term funds have been employed for long-term purposes. · We confirm that during the year company has not issued any shares. · We confirm that during the year company has not issued any debentures to any person. · We confirm that during the year company has not raised funds from the public issue of shares. · None of the employees of the Company were in receipt of remuneration in excess of the limits specified under various provisions of the Companies Act, 2013. · We confirm that Company has duly complied all the provisions of Section 40(A)3 of the I.T. Act, 1961, read with Rule 6DD, and has not made any payment of expenditure in excess of Rs……./- in Cash. · We confirm that Company has duly complied all the provisions of Section 269SS and 269T of the I.T. Act, 1961 and has not taken/accepted and or repaid any loans or deposits in excess of limits prescribed under these sections otherwise them through account payee Cheques and or draft as the case may be. · No personal expenses have been charged to revenue accounts. · No fraud has been committed during the year.

11. Other Information of the company:

Email id: :- Principal Contact No :- No. Of Employees: :- persons No. of Branches:- NIL 12. Others: (a) Our Books of Accounts and Other Records are kept at the corporate address of the company. (b) A bonus amounting Rs. NIL /- was paid to employees which is of customary nature. For and on behalf of the Board ……. Place: New Delhi

A chartered Accountant and a Law Graduate having more than 30 years of experience. Founder of Tri Nagar Keshav Puram CPE Study Circle of NIRC of ICAI. Have organized learning sessions covering the Syllabus for Limited Insolvency Examination in different cities and forums in Northern India.

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Draft format of Management Representation Letter on Statutory Audit

Management representation letter on statutory audit.

The Management Representation Letter is required to be furnished before the Financial Statements are signed. The auditor should obtain representations from management, wherever considered appropriate. The auditor should obtain evidence that management acknowledges its responsibility for the appropriate preparation and presentation of financial information and that management has approved the financial information.

A sample format of management representation letter (for a company under the Companies Act, 2013) is given below which is required to be tailored for each circumstance .

Written representations are an important source of audit evidence as per "SA 580 WRITTEN REPRESENTATIONS". Although written representations provide necessary audit evidence, they do not provide sufficient appropriate audit evidence on their own about any of the matters with which they deal. Representations by management cannot be a substitute for other audit evidence that the auditor could reasonably expect to be available. For example, a representation by management as to the quantity, existence and costs of inventories is no substitute for adopting normal audit procedures regarding verification and valuation of inventories. Accordingly if you are stating "Valuation of Stock is taken as certified by the management " in your Tax Audit/ Stat Audit then don't do that.

Furthermore, the fact that management has provided reliable written representations does not affect the nature or extent of other audit evidence that the auditor obtains about the fulfillment of management’s responsibilities, or about specific assertions.

I have attached herewith draft management representation letter as per the Practitioner’s Guide to Audit of Small Entities issued by the ICAI . However, being draft format you must make necessary changes and modifications as per each circumstances and given format of management representation letter can not be considered as standard one.

Download management representation letter here.

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Draft Format of Engagement letter & Management representation on Tax Audit

Purpose: The main purpose of Management Representation Letter on various matters is to focus the management’s attention on those matters so that the management can specifically address those matters in more detail than would otherwise be the case.

However the Auditor needs to understand the limitations of management representations as audit evidence. Getting a Management Representation Letter does not absolve the auditor of its responsibilities. He has to exercise professional care in conducting the audit. However draft format of Draft Format of Engagement letter & Management representation on Tax Audit are as under:-

Draft Format of Engagement letter on Tax Audit

Date: XX/XX/2020

The Executive Director (Mention the name & Address of client)

We refer to the letter dated informing us about our (re) appointment as the tax auditors of the Company/Partnership/LLP/individual. You have requested our firm “ ……….” to do the tax audit of the Company/ Partnership/LLP/individual as defined in Section 44AB of the Income Tax Act, 1961, for the previous year(s) ending March 31, 2020. The tax audit of the Company/Partnership/LLP/individual include issuance of Tax Audit Report in Form Nos. 3CA/3CB and 3CD & filing the same with Income Tax Department. We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter.

Our audit will be conducted for the purpose to ascertain/derive/report the requirements of Form Nos. 3CA/3CB and 3CD, to ensure that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer and claims for deduction/relief are correctly made by him & to checking fraudulent practices. In ascertaining/deriving/reporting the requirements of tax audit, we will rely on the work of statutory auditors appointed by the Company, to the extent it will required.

We will conduct the tax audit in accordance with the Provisions of Income Tax Act, 1961 & rules and regulations made thereunder. This tax audit involves performing procedures to ascertaining/deriving/reporting the requirements and the disclosures required in Form 3CA/CB & 3CD. Tax audit also includes evaluating the compliances with the provisions of Income Tax, TDS and with other laws.

Form 3CD should be duly filled & authenticated by the Management. We will only verify and confirm the same & on that basis form our opinion & issue the report in Form 3CA/3CB as the case may be.

• For the preparation of tax audit report that give assurance in accordance with the provision of the Act, This includes:
• Compliance with the applicable provisions of the Income Tax Act, TDS Provisions & GST Provisions;
• Proper maintenance of accounts and other matters connected therewith;
• Identifying and informing us of financial transactions or matters that may have any adverse effect on the tax compliance of the Company.
• Providing the required information completely and accurately in required formats.
• To provide us, inter alia, with:
• Access, at all times, to all information, including the books, accounts, vouchers and other records and documentation of the Company, whether kept at the Head Office or elsewhere, of which the Management is aware that are relevant to the “books of account” such as records, documentation and other matters.
• Access to reports, if any, relating to internal reporting on frauds (e.g., vigil mechanism reports etc.), including those submitted by cost accountant or company secretary in practice;
• Additional information that we may request from the Management for the purposes of our audit;
• Unrestricted access to persons within the Company from whom we deem it necessary to obtain audit evidence. This includes our entitlement to require from the officers of the Company such information and explanations as we may think necessary for the performance of our duties as the tax auditors of the Company; and
• All the required support to discharge our duties as the tax auditors.

As part of our audit process, we will request from the Management written confirmation concerning representations made to us in connection with our audit.

Our report prepared in accordance with relevant provisions of the Act would be addressed to the Company. The form and content of our report may need to be amended in the light of our audit findings.

Our fees will be billed as follows”

The total audit fee of Rs…… (Excluding GST) (Rupees………………only) which will be billed on submission of the audit report.

We wish to emphasis that our audit report will be exclusively for income-tax purposes. We shall not be liable for any way to any third party to whom you may make the audit report available.

We also wish to invite your attention to the fact that our audit process is subject to ‘peer review’ under the Chartered Accountants Act, 1949. The reviewer may examine our working papers during the course of the peer review.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangement for our audit of the financial statements.

Thanking you Yours faithfully For M/s …... Chartered Accountants (Mention name & Designation of Partner)

Draft Format of Management Representation Letter –Tax Audit

[ON THE LETTER HEAD OF AUDITEE] Date: XX/XX/2020

M/s …... Chartered Accountants

Sub: Management Representation in course of Tax Audit for A.Y……

Please find enclosed a copy of Form 3 CD along with all relevant details for the purpose of conducting the Tax Audit of XYZ Company, for the year ended 31st March, 2020. In this connection, we further confirm that

• The address that we have reported in Clause 2 of the form 3CD is same as we have informed to the income tax department, there is no change in the same.
• That the registration or identification number, if any, under indirect tax laws including excise duty, goods & service tax, sales tax, customs duty, etc. as informed to you and reported in Clause 4 of Form 3CD are correct and there is no other number other than what is reported in said clause.
• We certify, there has been no change in the partners or members or in their profit sharing ratio since the last date of the preceding year during the year under report as stated in clause 9 (b) of form 3 CD.
• We certify, there has been no change in the nature of business during the year under report as stated in clause 10 (a) of form 3 CD.
• That the List of books of account as prescribed u/s 44AA have been maintained and the address at which the books of accounts are kept as reported in Clause 11 has been informed by us and there are no other books and no other location at which books are kept.
• We confirm that the profit and loss account does not include any profits and gains assessable on presumptive basis under relevant sections 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section as stated in clause 12 of form 3 CD.
• The company has followed the mercantile system of accounting & there is no change in the method of accounting employed in the immediately preceding previous year, for the preparation of final accounts for the financial year 2019-2020 as stated in clause 13 of form 3 CD.
• We certify that the valuation of closing stock is on the same basis & there is no deviation from the method of valuation prescribed under section 145A as stated in clause 14 of form 3 CD.
• We certify that there are no capital assets which are converted into stock in trade as stated in clause 15 of form 3 CD.
• We certify there is no capital receipt which is credited to Profit & Loss Account as stated in clause 16 of form 3 CD.
• We certify that the items falling within the scope of section 28 have been correctly stated in clause 16.
• That there is no land or building or both which is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, other than what is informed by us and has been reported in Clause 17 of Form 3CD.
• We follow a policy of capitalizing an asset only after the asset has been purchased and has been put to use. The date on which the asset is put to use is as certified by us in Clause 18 of Form 3CD.
• We certify that particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each asset or block of assets, as the case may be are correct.
• We certify that there is no sum paid to an employee as bonus or commission for service rendered, where such sum was otherwise payable to him as profit or dividend as stated in clause 20 of form 3 CD.
• The employee’s and employer’s share contributed towards provident fund, pension fund and ESI, date of deposit and amount of deposit is correctly stated in clauses 20 (b) of Form 3CD.
• No Capital Expenses have been debited to any Revenue Accounts as stated in clause 21 (a) of form 3 CD.
• All the expenses incurred on during the Year by us are for the purpose of business only.
• No personal expenses, except those under contractual obligations or by generally accepted business practice, have been charged to the profit & loss account.
• We certify that there is no expenditure on advertisement in any souvenir, broucher, tact, pamphlet etc. published by a political party. Further we confirm that we have not made any expenditure at clubs.
• There have been no amounts in the nature of penalties or fines levied on us other than what has been disclosed in Clause 21 (a).
• We have not made any payments otherwise than Account payee cheque, above Rs. 10,000/- (Rs.35,000 in case of Transporters) covered u/s 40A(3) or Section 40A(3A) during the year except those which have been disclosed in Clause 21(d).
• No sums have been paid by the company as an employer which is not allowable U/s 40A (7) of the Income Tax Act, 1961 as stated in Clause 21(e).
• We have not incurred any liability of a contingent nature as stated in Clause 21(g).
• No amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006 other than stated in Clause 22.
• All transactions with any related party within the meaning of section 40(A)(2)(b) of the Act, have been disclosed in Clause 23.
• No amounts deemed to be profits and gains under section 32AC or 32AD or 33AB or 33ABA or 33AC other than stated in Clause 24.
• There is no amount of profit chargeable to tax u/s. 41 as disclosed under clause 25 of Form 3CD.
• All the statutory dues have been deposited on time as disclosed under clause 26.
• That during the previous year we have not received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia) under clause 28 of Form 3CD.
• That during the previous year we have not received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib) under clause 29 of Form 3CD.
• That we have not accepted or repaid any amount borrowed on hundi or any amount due thereon in contravention to Section 269SS and 269T of the Act (including interest on the amount borrowed), otherwise than through an account payee cheque, bank draft, Online payments as stated in clause 30 & 31 of Form 3CD.
• That we have not incurred any loss referred to in section 73A of the Act in respect of any specified business during the previous year as stated in clause 32 of Form 3CD.
• That the company is not deemed to be carrying on a speculation business as referred in explanation to section 73 as stated in clause 32 of Form 3CD.
• There are no deductions under Chapter VI A other than those stated in Clause 33.
• The taxes deducted at source by us under the provisions of the Income-tax Act during the year have been paid to the Central Government except those which have been disclosed in Clause 34(a).
• The statement of tax deducted or collected contains information about all transactions which are required to be reported under Clause 34(b) of the Form 3CD.
• Interest payable u/s 201(1A) and 206C(7) of the Act have been paid which have been disclosed in Clause 34(c).
• We certify that stock quantities furnished in Clause 35 of Form 3CD has been valued & certified by us.
• No Cost Audit was carried out during the relevant Assessment year as reported in the clause 37.
• No audit under Central Excise Act was carried out during the relevant Assessment year as reported in the clause 38.
• No audit was conducted under section 72A of the Finance Act, 1994 in relation to valuation of taxable services during the relevant Assessment year as reported in clause 39.
• The basis of calculation of ratios as specified in clause 40 of Form 3CD is correct.
• That there is no demand raised or refund issued during the previous year under any tax laws other than Income Tax Act, 1961 and Wealth tax Act, 1957 as required in Clause 41.
• We also certify information furnished in Clause 1 to 44 & Annexures 1 to ….. of Form 3CD are true and correct.

By order of the Board For Name of company» Sd/- Sd/- Name Name Director Director DIN- DIN- Place:- Date:-

Published by

Gaurav Singla (Associate Manager) Category Income Tax   Report

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ICAI Releases ‘Excel Utility for Engagement Letter Management’ for the Ease and benefit CA Members

The Institute of Chartered Accountants of India (ICAI) has taken another significant step to enhance the efficiency and convenience of its members. In its ongoing commitment to supporting chartered accountants across the country, ICAI has recently introduced an ‘Excel Utility for Engagement Letter Management.’ This utility is designed to streamline the process of managing engagement letters, benefiting members and simplifying their work.

ICAI, vide ‘X’ formerly known as ‘twitter’ has informed the release of excel utility for engagement letter Management for the ease and benefit of members.

The twitter post of ICAI states as follows “The ICAI Central Council through its Centre for Audit Quality Directorate has released a ‘Excel Utility on Engagement Letter’ for the ease & benefit of Members.”

https://x.com/theicai/status/1719579906659832318?s=20https://x.com/theicai/status/1719579906659832318?s=20

Engagement letters are crucial documents in the world of auditing and accounting. They set the terms and conditions of a professional relationship between a client and a chartered accountant, outlining the scope of work, responsibilities, and expectations. Managing these documents efficiently is essential for ensuring transparency and legal compliance in the profession.

ICAI’s Excel Utility for Engagement Letter Management offers a user-friendly tool to help members create, organize, and manage these documents effectively. The utility simplifies the engagement letter process, making it more convenient for chartered accountants to carry out their duties.

Access the excel utility by filling the google forms here .

Check the illustrative format of the Engagement Letter released by the ICAI in 2014  here .

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Demystifying ISA 580: Management Representation Letters in Auditing

Introduction: The Basics of Audit – Management Representation Letter (ISA 580)

In the intricate world of auditing, there exists a pivotal document known as the Management Representation Letter, guided by ISA 580. This document plays a central role in audits, acting as a conduit for communication between management and auditors. In this comprehensive exploration, we delve deep into the intricacies of the Management Representation Letter, covering all 19 key points outlined in the standard, from its purpose to the actions auditors must take in the face of challenges.

Detailed Analysis:

1. Understanding the Management Representation Letter

A Management Representation Letter, as stipulated by ISA 580, constitutes a formal statement presented by the management of the audited entity to the auditors. It can be furnished either spontaneously or in response to specific audit inquiries. These representations encompass a wide spectrum of subjects, ranging from general responsibilities related to the preparation of financial statements to specific assertions concerning items within the financial statements.

2. The Role of Management Representation as Audit Evidence

While Management Representation Letters hold undeniable importance, they cannot serve as a complete replacement for other audit evidence that auditors anticipate will be available. For select matters where no alternative evidence exists, such as determining whether investments are held as short-term or long-term, Management Representation can indeed function as sufficient and appropriate audit evidence.

3. Key ISA 580 Requirements

Revised ISA 580 introduces two significant stipulations:

• 3.1. In the event that a representation made by management contradicts other audit evidence, auditors are obligated to investigate the circumstances thoroughly and, if necessary, reassess the reliability of other representations provided by management.
• 3.2. If, during the course of the audit, management refuses to furnish a representation that auditors deem essential, this constitutes a scope limitation. Consequently, auditors are required to express a qualified opinion or a disclaimer of opinion.

4. Additional Vital Elements of Management Representation

• 4.1. The Management Representation Letter must be addressed directly to the auditor.
• 4.2. Its date should coincide with the date of the auditor’s report or precede it.
• 4.3. It should bear the signature of a member of management who bears primary responsibility for the preparation of financial statements and possesses pertinent knowledge in this regard.

5. Various Forms of Written Representation

Management Representation can assume various formats, including:

• 5.1. A straightforward representation provided by management.
• 5.2. A letter authored by auditors delineating their understanding of management’s representation, an acknowledgment of which is sought and obtained from management.
• 5.3. A duly authenticated copy of pertinent meetings involving the board of directors or analogous bodies.

6. The Effective Date of ISA 580

ISA 580 is effective for audits of financial statements for periods beginning on or after 1st April, 2009.

7. The Objectives of the Auditor

The objectives of the auditor, as per ISA 580, encompass:

• 7.1. Obtaining written representations from management and, where appropriate, those charged with governance, confirming their belief in fulfilling their responsibility for preparing the financial statements and ensuring the completeness of information provided to the auditor.
• 7.2. Supporting other audit evidence relevant to the financial statements or specific assertions in the financial statements through written representations, as determined necessary by the auditor or required by other SAs.
• 7.3. Responding appropriately to written representations provided by management and, where appropriate, those charged with governance, or if management or, where appropriate, those charged with governance do not provide the written representations requested by the auditor.

8. Definition of Written Representations

For purposes of the SAs, “Written representations” is defined as a written statement by management provided to the auditor to confirm certain matters or to support other audit evidence. Written representations, in this context, do not include financial statements, the assertions therein, or supporting books and records.

9. References to “Management” in the Standard

For purposes of this SA, references to “management” should be read as “management and, where appropriate, those charged with governance.” In the case of a fair presentation framework, management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework; or the preparation of financial statements that give a true and fair view in accordance with the applicable financial reporting framework.

10. Management from Whom Written Representations Requested

The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned.

11. Written Representations about Management’s Responsibilities for the Preparation of the Financial Statements

The auditor shall request management to provide a written representation 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.

12. Written Representations about Information Provided and Completeness of Transactions

The auditor shall request management to provide a written representation that:

• 12.1. It has provided the auditor with all relevant information and access as agreed in the terms of the audit engagement.
• 12.2. All transactions have been recorded and are reflected in the financial statements.

13. Description of Management’s Responsibilities in the Written Representations

Management’s responsibilities shall be described in the written representations required by paragraphs 9 and 10 in the manner in which these responsibilities are described in the terms of the audit engagement.

14. Other Written Representations

Other SAs may require the auditor to request written representations. If, in addition to such required representations, the auditor determines that it is necessary to obtain one or more written representations to support other audit evidence relevant to the financial statements or one or more specific assertions in the financial statements, the auditor shall request such other written representations.

15. Date of and Period(s) Covered by Written Representations

The date of the written representations shall be as near as practicable to, but not after, the date of the auditor’s report on the financial statements. The written representations shall be for all financial statements and period(s) referred to in the auditor’s report.

16. Form of Written Representations

The written representations shall be in the form of a representation letter addressed to the auditor. If law or regulation requires management to make written public statements about its responsibilities, and the auditor determines that such statements provide some or all of the representations required by paragraphs 9 or 10, the relevant matters covered by such statements need not be included in the representation letter.

17. Doubt as to the Reliability of Written Representations and Requested Written Representations Not Provided

• 17.1. If the auditor has concerns about the competence, integrity, ethical values, or diligence of management, or about its commitment to or enforcement of these, the auditor shall determine the effect that such concerns may have on the reliability of representations (oral or written) and audit evidence in general.
• 17.2. In particular, if written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the matter. If the matter remains unresolved, the auditor shall reconsider the assessment of the competence, integrity, ethical values, or diligence of management, or of its commitment to or enforcement of these, and shall determine the effect that this may have on the reliability of representations (oral or written) and audit evidence in general.

18. Requested Written Representations Not Provided

If management does not provide one or more of the requested written representations, the auditor shall:

• 18.1. Discuss the matter with management.
• 18.2. Re-evaluate the integrity of management and evaluate the effect that this may have on the reliability of representations (oral or written) and audit evidence in general.
• 18.3. Take appropriate actions, including determining the possible effect on the opinion in the auditor’s report in accordance with SA 705, having regard to the requirement in paragraph 19 of this SA.

19. Written Representations about Management’s Responsibilities

The auditor shall disclaim an opinion on the financial statements in accordance with SA 705 if:

• 19.1. The auditor concludes that there is sufficient doubt about the integrity of management such that the written representations required by paragraphs 9 and 10 are not reliable; or
• 19.2. Management does not provide the written representations required by paragraphs 9 and 10.

Conclusion: Unlocking the Significance of ISA 580

In conclusion, ISA 580, which revolves around the Management Representation Letter, is a comprehensive framework that ensures transparency, accountability, and reliability in the audit process. By covering all 19 points detailed in the standard, auditors can effectively navigate the complexities of this critical document. Understanding the nuances of ISA 580 empowers auditors to fulfill their duties with precision, integrity, and professionalism, ultimately enhancing the quality of financial reporting and instilling confidence in stakeholders.

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

Illustrative Management Representation Letter (MRL) for Tax Audit

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

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_____________________

Chartered Accountants

Address: ____________

(Date: ______________)

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

Respected Sir/ Madam,

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

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

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

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

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

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

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

(a) Service Tax: _________________

(b) VAT: _________________

(c) Excise: _________________

(d) Import Export Code: _________________

(e) GST: _________________

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

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

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

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

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

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

(a) Cash Book

(b) Bank Book

(d) Journal

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

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

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

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

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

(c) escalation claims accepted during the previous year;

(d) any other item of income; and

(e) capital receipts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For and on behalf of

(Director Finance)

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