management representation letter rules

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

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• PROFESSIONAL LIABILITY SPOTLIGHT

Use of e-signatures for engagement documentation

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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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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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Illustrative Management Representation Letter: SOC 2® Type 2

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AT-C section 205, Assertion-Based Examinations, requires the service auditor to request written representations from the responsible party in a SOC 2 engagement. These representation should be in the form of a letter addressed to the service auditor. The following illustrative management representation letter includes the representations required by AT-C section 205 as well as additional representations specific to a SOC 2 Type 2 examination and should be used for engagements with reports dated on or after June 15, 2022. This

Download the Illustrative Mgmt Rep Letter for SOC 2 Type 2

File name: illustrative-mgmt-rep-letter-for-soc-2-type-2.pdf

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• Representation to Management

Do you remember your school times? You may have written some leave applications. Also, during your college days, you would have written some letters. You had written application letters, letters for food quality of college mess, improving the furniture of classroom etc. To whom you had written these letters? Your principal, class teachers, or persons in responsibility. In the business world also, you need to write some letters to your management teams. You can write regarding your promotion, transfer, food quality in the canteen. Also, you can inform them about your leave. These are some of the management representation letters. In this section, we will study the management representation letter.

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Management Representation Letter

A letter written to the management group from an individual is a management representation letter. The person within the organization writes the letter to the organization. It serves as a permanent record in an organization. Through the management representation letter, one can write their cause to the management. The various management representation letters are suggestions for transfers, representation against transfer, holiday leave, promotion letter etc.

The format of Management Representation Letter

There is a fixed format of a management representation letter.

The very part of the letter is Date. One should write the date in any format.

One should write the sender’s name and address after mentioning the date.

Below the sender’s details, one should write the receiver’s name and address.

One should clearly mention the reason for writing a letter.

It contains the words to greet the recipient. Proper greeting and salutation empresses the reader. One can use words like Dear, Respected or Sir/Ma’am etc.

Content or Body of the Letter

It is the main part of the letter. It includes the actual message of the sender. The main body of the management representation must be clear and simple to understand. A body of the letter is basically divided into three main categories.

Opening Part

The first paragraph of the letter must state the introduction of the writer.

This paragraph states the main idea or the reason for writing. It must be clear, concise, complete, and to the point.

Concluding Part

It is the conclusion of the letter. It shows the suggestions or the need of the action. The closing of the letter shows the expectation of the sender from the recipient. Always end the letter by courteous words like thanking you, warm regards, look forward to hearing from your side etc.

Complimentary Close

It is a humble way of ending a letter. It is written in accordance with the salutation. The most generally used complimentary close are Yours faithfully, Yours sincerely, and Thanks & Regards.

Signature and Writer’s Identification

It includes signature, name, and designation of the sender. It can also include other details like contact number, address etc. The signature is handwritten just above the name of the sender.

Points to Remember

A management representation letter is a request letter. There are some important points related to it. Let us get ourselves familiar with them.

• The tone for writing this letter is polite.
• The content must be clear and to the point.
• Avoid slags and abbreviation.
• One should use formal and straightforward words and language.

Solved Example for You

Problem: A person writes a management representation letter. What are the possible ways in which the management can reply to them?

Solution: The management could reject the request of the letter. It may give a reply or say that they are considering the request. The management could accept the request of the letter.

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Management Representation Letter (MRL)

The Management Representation Letter is a letter addressed to a federal entity's external auditor, signed by senior management. The letter attests to the accuracy of the financial information that the federal entity has submitted to the auditors for their analysis.

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Management Representations

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 representation should reaffirm your client’s understanding of all significant terms in the engagement letter.

Illustrative Guidance – Management Representations Listed here are some basic representations you could consider using in a compilation management representation letter: Management has reviewed and approved the financial statements as well as all journal entries; The practitioner has explained that the financial statements might not be suitable for use by other persons; Management has provided the practitioner with all of the accounting records and financial information necessary to compile the financial statements; and Management is not aware of any matter that has occurred or is pending that would cause the financial statements to be false or misleading.

Practice Management Tip Consider tailoring specific representations for the engagement to mitigate identified risks. Two examples of representation points that might apply to most compilation engagements are:   Management confirms that it has not included any personal or other inappropriate expenditure in the company’s financial statements; and Management has disclosed all foreign assets, investments, and transactions to you. Be sure to get the appropriately authorized individual to sign the representation letter before you issue the Notice to Reader.

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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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Home » Blog » Checklist for Auditors when Obtaining Written Management Representations (SA 580)

Checklist for Auditors when Obtaining Written Management Representations (SA 580)

• Blog | News | Account & Audit |
• Last Updated on 14 April, 2023

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SA 580, Written Representations, deals with the auditor’s responsibility to obtain written representations from management and, where appropriate, those charged with governance. Written representations are necessary information that the auditor requires in connection with the audit of the entity’s financial statements. Accordingly, similar to responses to inquiries, written representations are audit evidence.

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. 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 fulfilment of management’s responsibilities, or about specific assertions. This story discusses the checklist for the auditor to be considered while obtaining the MRL.

1. Whether the auditor has obtained from the management and, where appropriate, those charged with governance written representations (WRs) that all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing financial statements have been disclosed to the auditor

2. Whether the auditor has obtained written representations (WRs) from management and, where appropriate, those charged with governance whether they believe significant assumptions used in making accounting estimates are reasonable

3. Whether the auditor has obtained a written representation (WR) from management and, where appropriate, those charged with governance that they believe the effects of uncorrected misstatements are immaterial, individually and in the aggregate, to the financial statements as a whole. A summary of such items shall be included in or attached to the written representation

4. Whether the auditor has obtained written representations (WRs) from the management regarding the classification and valuation of investments for Balance Sheet purposes

5. Whether the auditor has obtained written representations (WRs) from the management regarding the recoverability of debtors and loans and advances and their classification for balance sheet purposes

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

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ICAI’s Implementation Guide on Rule 11(e) & 11(f) of the Companies (Audit and Auditors) Amendment Rules, 2021

ICAI has released an ‘Implementation Guide on Rule 11(e) & 11(f) of the Companies (Audit and Auditors) Amendment Rules, 2021’, which has been notified by MCA vide Notification dt. 24/03/2021 applicable from 01/04/2021.

The scope of reporting requirements set forth in the amended Companies (Audit and Auditors) Amendment Rules, 2021 is very wide and is applicable for audits of companies for the financial year 2021-22 and onwards.

The Implementation Guide of ICAI contains detailed guidance on various aspects of reporting under Rule 11(e) like analysis of Rules, management’s responsibilities in respect of disclosures in financial statements under Schedule III to the Companies Act, 2013, various audit procedures to be performed, reporting considerations, illustrative formats of confirmation letters, illustrative formats of management representations. The Implementation Guide also contains detailed guidance on various aspects of reporting under Rule 11(f) like relevant requirements under the Companies Act, 2013 and Rules thereunder, audit considerations, reporting requirements, audit procedures and illustrative reporting. The Implementation Guide will enable auditors of companies to comply with the reporting requirements under these Rules effectively.

The purpose of this Implementation Guide is to enable the auditors to comply with the reporting requirements of Rule 11(e) and Rule 11(f). It should be noted that whilst the guidance given in this Implementation Guide provides the principles for reporting under the aforesaid Rules, the auditors should also exercise their professional judgement and experience on the matters on which they are required to report.

ICAI’s Implementation Guide ( 2022 Edition ) on Rule 11(e) & 11(f) of the Companies (Audit and Auditors) Amendment Rules, 2021

MCA Notification dt.  24/03/2021 : Companies (Audit and Auditors) Amendment Rules, 2021, applicable w.e.f. 01/04/2021, notified to insert new Rules 11(e), 11(f) & 11(g)

One Response

The Audit Report in current form is too voluminous. What’s the point of specifying Management’s responsibilities. It’s basically to submit the Financial statements following all Accounting norms. Auditors should certify whether the Financial statements are prepared following prescribed norms and whether it gives true and fair view. Otherwise qualify. Why take cover by passing responsibility to Management.

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Management Representation Format for Certifying GSTR 9C – GST Audit U/S 35(5)

Updated on November 28th, 2023

Definition of Audit given under Section 2(13) of CGST Act 2017, envisages, auditor should verify the correctness of Turnover Declared, taxes paid, refund claimed, ITC availed and assess compliance with provisions of GST Law. While carrying out certification for Form GSTR 9C, auditor is required to ensure that he has obtained reasonable audit evidence to certify in Form GSTR 9C that:

• In my/our opinion, proper books of accounts are maintained
• Financial Statement are in agreement with books of account
• Particulars given in Form GSTR 9C are true and correct

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As per Standard on Auditing issued by ICAI, SA 580 “Written Representation” - Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based. Written representations are necessary information that the auditor requires in connection with the audit of the entity’s financial statements. Accordingly, similar to responses to inquiries, written representations are audit evidence. Written representations are an important source of audit evidence.

Management representation is a letter issued by a client to the auditor in writing as part of audit evidences. This article contain sample draft format of Management Presentation for GSTR 9C Certification. This is only suggested format for information and knowledge of audience. This should not be construed as any legal advice.

Date: dd/mm/yy

[Comment - The date of the document must not be later than the date of audit work completion]

ABC & Associates ,

Chartered Accountants ,

Address ----------------------

Sub : Letter of Management Representation for conducting GST Audit and Certifying Form GSTR 9C for the financial year ended March 31, 20xx (GSTIN :  --------------------------- )

[Comment – It is recommended that in case of Multi GSTIN Taxpayer, mention his GSTIN number all applicable places in MR]

Dear Sir/Madam,

This is with reference to the GST audit, to be conducted by your firm, and as required under the provisions of section 35(5) and section 44(2) of the Central Goods And Service Tax Act, 2017 / State Goods and Service Tax Act 2017 (Referred as “GST Act / GST Law” in this document) read with Rule 80(3) of the Central Goods and Service Tax Rules (In short “CGST Rules, 2017”), of our firm M/s -------------------------Pvt Ltd , having GSTIN ----------------------- , Address -----------------------------, for the financial year ended March 31, 20xx, we acknowledge our responsibility for the maintenance of books of accounts, related documents, relevant registers in accordance with the requirements of the GST laws and as per the recognized accounting standards and practices as issued by the ICAI.

This letter is provided to you in connection with, the conduct of audit by your firm under the GST Laws, and for the purpose of carrying out the attest function in Form GSTR 9C based on

our letter of engagement dated ---------------- and your acceptance letter dated ---------------.  

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We confirm to the best of our knowledge and belief that:

Place of Business

• We are operating our business from address mentioned in our registration certificate. We do not have, any other place of business, other than those stated in Registration Certificate, during the year under audit.
• We confirm that all places of business with respect to our GSTIN number, is stated in our Registration Certificate.
• Particulars mentioned in our registration certificate are correct.
• We have affixed GST Registration Certificate at prominent place of each business place as well as mentioned in all name board exhibited at all places of business.
• We have undertaken supply from only place of business, as mentioned in Registration. We have not affected any supply of goods or services or both, from places other than those declared in the certificate of registration.

Outward Supply

• We have recorded all taxable supplies, Zero Rated Supplies, Exempt Supplies in books of accounts and paid GST on the same, as applicable.
• Wherever we have exported goods or services, duty free, we have submitted Letter of Undertaking, as per applicable provisions and procedure, before undertaking the exports.

[Comment – Clause b is applicable only if there is Exports]

• We have paid GST, on receipt of advance, against supply of taxable services and against supply of goods, as applicable.

[Comment – Clause c is applicable only if there is Exports]

• All kinds (inter-State and intra-State) of supplies / supply returns including sale of assets, if any, have been duly classified and properly accounted for in books of accounts.
• We have correctly classified our outward supplies into B2B and B2C category and disclosed in our monthly GST Returns.
• The Deemed supply transactions as per Schedule I of GST Law viz., supplies to Related Parties or supplies between distinct entities / distinct persons are properly valued and recorded in books of accounts. All transactions / supplies with related parties or distinct persons has been recorded in books and there are no transaction/supply with related parties/distinct person, which are not accounted in Books of Accounts.

[Comment – Clause d is applicable only if there is transaction with Related Parties / Distinct Person]

• Wherever, we have carried out Exempted Supply or Supply at concessional rate of tax, we have ensured that, we have complied with required conditions of applicable GST Provisions / Notification

[Comment – Clause g is applicable only if there is Exempted Supply or Merchant Export Supply at 0.01%]

Inward Supply

• All Inward Supply with respect to above GSTIN, are recorded against said GSTIN in books of accounts.

[Comment – Clause a is applicable only if it is Multi GSTIN Tax payer]

• Reverse Charge liability on inward supplies, as applicable, as per provisions of GST Law are properly accounted and recorded in books of accounts.
• In case of taxable inward supplies, wherever input tax credit of GST is admissible, it is properly availed and accounted in the relevant register.

Input Tax Credit

• We have availed ITC as per condition laid down by Sec 16 of GST Act that is, credit is availed after receipt of goods / services and on the basis of Invoice/debit note issued by supplier.
• Whatever ITC is availed by us, it is with respect to above mentioned GSTIN only. We have not availed any ITC under above mentioned GSTIN, which is common for all GSTIN under our PAN or which belongs to another GSTIN under our PAN

[Comment – Clause b is applicable only if it is Multi GSTIN Tax payer]

• We confirm that, we have not availed Input Tax Credit or reversed availed Input Tax Credit,  in respect of inward supplies effected by us, where we have not paid the supplier within a period of 180 days, in terms of proviso to section 16(2) of the CGST Act 2017, except invoices if any, provided to you separately during audit.
• We confirm that we have not taken any input tax credit in respect of goods/Services restricted in terms of section 17(5) of the CGST Act.
• Wherever goods are lost/destroyed/written off/ disposed as free sample or gift, its ITC is reversed by us or not availed.
• We confirm that input tax credit availed by us, are in respect of use in course or furtherance of business. Wherever ITC is availed on goods/services, it is not used for personal purpose.
• We are in possession of all original tax invoices of inward and copy of outward supplies issued and we have availed input tax credits based on such original invoices relating to inward supplies.
• ITC of GST paid on Reverse Charge Liability is properly availed as per provisions of GST Law and on the basis of Self Invoice issued by, as required by Rule 36(1)(b) of CGST Rules 2017.
• If input/input services/capital goods are used for Taxable supply and exempted supply or exclusively for exempted supply, its ITC is reversed/not availed as per provisions of sec 17 of CGST Act 2017.

Transitional Provisions

• We have claimed transitional credits as per the provisions of the GST laws.

[Comment – Clause a is applicable only if Transitional Credit is claimed]

• We confirm having complied with the provisions of section 171 of the CGST Act in respect of Anti-profiteering.
• Transitional provisions given under Chapter XX of CGST Act 2017, wherever applicable, are compiled by us.

[Comment – Clause a, b, c is applicable only for F.Y. 17-18]

Documentation

• We confirm that, we have issued proper Invoice, Bill of Supply as applicable for supply of service, as per the provisions of the GST law.
• Provisions of E Way Bill as given under GST Law are complied with.

[Comment – Clause b is applicable from F.Y. 18-19]

• We have issued the Self-Invoice as per Sec 31(3)(f) of CGST Act 2017, in respect of transactions that are liable to tax on reverse charge in case of inward supplies effected from unregistered suppliers.

[Comment – It is recommended that auditor should keep some sample RCM invoice copies with him as audit evidence of verification]

• Whenever applicable, we confirm that we have maintained appropriate stock records as required under the GST laws.

[Comment – It is applicable for Goods Industry or Service Industry having stock of goods as Inputs.]

• We have issued only One Original Tax Invoice / Bill of Supply / Debit Note or credit Note as the case may be, and all other copies are marked as Duplicate / Triplicate etc.
• We have prepared the monthly returns based on the books of accounts maintained.
• We have maintained the relevant records in respect of goods sent to / received from job workers and correctly accounted those transactions. We confirm that all goods sent to job workers have been received back within the timelines prescribed.
• Provisions of Job work as given under GST Act, are complied with.

[Comment – This clause is applicable only Tax Payer is sending / receiving goods for Job work.]

Classification

• We confirm that, we have correctly classified the activities (i) as supply of goods and / or supply of services as per Second Schedule of GST law, (ii) Composite Supply / Mixed Supply and (iii) into correct HSN / SAC Code, in accordance with the applicable schedules of GST Rate notifications issued under GST Act.
• The accounting policies adopted by us are set out and elaborated in Notes to Accounts attached to the financial statements.
• We confirm that we have adhered to the provisions relating to time of supply of goods and time of supply of services in terms of section 12 and Section 13 of the GST Act, 2017.
• We confirm and reiterate that while we have our books and records in compliance with the applicable statutes. However, we are not in a position to furnish the State-wise financial Statements for review / audit purposes. Internally we have maintained separate records GSTIN wise of Inward and Outward Supply.

[Comment – Clause c is applicable only if it is Multi GSTIN Tax payer]

• During the year, no application for Advance Ruling has been sought by us under GST Law.

For -----------------------------Pvt Ltd

Authorized Signatory

Designation:

This is only suggested format for information and knowledge of audience. This should not be construed as any legal advice. It is only for educational purpose.

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About the author

He has authored book on GST, titled as “Handbook on GST For Beginners”. Also he has authored Two E Book on - GST E Way Bill and GST Amendment Act. He has conducted seminars on GST, Indirect Tax & Foreign Trade Policy at – FIEO, ICAI, MSME, CII, MCCIA, WMTPA, Institute of Cost Accountant of India, Various association, colleges and Institutions etc He has conducted 250+ seminars on IDT across India, for Professional, Students, Officers, Practitioners etc He is instrumental in obtaining Circular from Department. Also, he is Recognized Faculty for GST by ICAI. He is member of IDT Study group Pune of ICAI. He is member of “Taxation Committee”, of MCCIA. He is Chairman of ‘CGST – L & R – Committee’ of WMTPA He is regularly writing the articles which are published in various leading Taxation Magazine and online portal.

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