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For auditors and the clients they audit

A Canadian management representation letter under CAS 580

The last document in an audit file, and the one most often signed without being read. It usually arrives as the auditor's draft. It has to go back as management's own statement.

A management representation letter is written by the client's management to the auditor, on the client's letterhead, confirming in writing what management has told the auditor during the audit. In Canada the requirement is CAS 580, one of the Canadian Auditing Standards the AASB adopted from the International Standards on Auditing, so the letter follows the structure of ISA 580.

Last reviewed against 6 primary sources.

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Management representation letter

The full letter in Word and PDF, written for Canada, for the client to put on its own letterhead and sign.

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Next step: send it to the client through FirmHello, where it stays on their record beside everything else they send you.

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Written representations are audit evidence, but CAS 580 is clear that they never provide enough evidence on their own for any matter they cover. What the letter adds is management's signature under the responsibilities it accepted when it signed the engagement letter, and confirmation that it has met them.

The template below is organized the way the standard's illustrative letter is, with Canadian frameworks in the placeholders. The signed copy is one more document to collect from the client at year end, which is work a client portal for accounting firms is built for.

What every representation letter has to cover

AU-C 580, CAS 580, ISA (UK) 580 and ASA 580 differ in wording but agree on the core. A letter without these is not the letter the auditor asked for.

  1. 1

    The responsibilities from the engagement letter

    That management has fulfilled its responsibility for preparing the financial statements under the applicable framework, described the way the engagement letter described it. This is the representation that ties the two letters together.

  2. 2

    Information, access and complete records

    That management gave the auditor all relevant information and the access agreed in the terms of the engagement, and that every transaction has been recorded and is reflected in the statements.

  3. 3

    The matters other standards add

    Fraud and suspected fraud, non-compliance with laws and regulations, litigation and claims, related parties, subsequent events, accounting estimates, and uncorrected misstatements, with a list of the uncorrected items attached.

  4. 4

    Addressed to the auditor, dated at the end

    The letter is addressed to the auditor and covers every period the report covers. The auditor's report cannot be dated before the representations, so the letter is signed when the report is ready, not when fieldwork closes. If the audit requests went through a client portal for accounting firms, send the draft the same way, so the signed copy comes back to the file it belongs in.

The management representation letter

Written for Canada. The downloads are the same text, in Word and PDF, for the client to put on its own letterhead.

[Client letterhead]

[Date: as near as practicable to, but not after, the date of the auditor's report]

[Audit firm name]
[Audit firm address]

Purpose of this letter

This representation letter is provided in connection with your audit of the financial statements of [Client name] for the year ended [date], for the purpose of expressing an opinion on whether the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of [Client name] in accordance with [Canadian accounting standards for private enterprises / IFRS Accounting Standards].

[Only if agreed with you: For the purpose of these representations, we have not treated as exceptions misstatements below $[amount], the threshold you communicated to us. This amount is not the materiality used for the financial statements.]

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

The financial statements

1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated [date], for the preparation of the financial statements in accordance with [the applicable framework]; in particular, the financial statements are fairly presented in accordance with it.

2. The methods, the data and the significant assumptions we used in making accounting estimates, and the related disclosures, are appropriate to achieve recognition, measurement or disclosure that is reasonable in the context of [the applicable framework].

3. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with [the applicable framework].

4. All events after the date of the financial statements for which [the applicable framework] requires adjustment or disclosure have been adjusted or disclosed.

5. The effects of uncorrected misstatements are immaterial, individually and in the aggregate, to the financial statements as a whole. A list of the uncorrected misstatements is attached.

Information provided

6. We have provided you with access to all information of which we are aware that is relevant to the preparation of the financial statements, such as records, documentation and other matters; additional information you requested for the purpose of the audit; and unrestricted access to persons within [Client name] from whom you determined it necessary to obtain audit evidence.

7. All transactions have been recorded in the accounting records and are reflected in the financial statements.

8. We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud, and we have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud.

9. We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects [Client name] and involves management, employees who have significant roles in internal control, or others where the fraud could have a material effect on the financial statements.

10. We have disclosed to you all information in relation to allegations of fraud, or suspected fraud, affecting the financial statements communicated by employees, former employees, analysts, regulators or others.

11. We have disclosed to you all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing the financial statements.

12. We have disclosed to you all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements, and they have been accounted for and disclosed in accordance with [the applicable framework].

13. We have disclosed to you the identity of [Client name]'s related parties and all the related party relationships and transactions of which we are aware.

Matters specific to this audit

[Add any further representations the auditor has requested, such as those on going concern, on the intended use of particular assets, or on comparative information. Delete this section if there are none.]

Signed on behalf of management

[Name], [President / Chief Executive Officer]

Signature ______________________

[Name], [Chief Financial Officer / Controller]

Signature ______________________

Attachment: summary of uncorrected misstatements

Before you use this

Supplied as-is, with no guarantee. These templates are general information, not legal advice, and not a substitute for it. Have your own legal adviser review and adapt one to your practice and your jurisdiction before you put it in front of a client. FirmHello accepts no responsibility or liability for any use made of them.

What Canadian law adds around the representation letter

CAS 580 governs the letter. Corporate statutes govern the duties behind it. For a corporation under the Canada Business Corporations Act, giving the auditor information is not only something management confirms in writing; it is a statutory duty owed to the auditor on demand. Provincial corporate statutes have their own versions, so check the client's governing act.

Many private companies are reviewed rather than audited. CSRE 2400, the Canadian review standard, also relies on written representations, and it adds one that the international review standard does not require.

Information on demand

Section 170 of the CBCA obliges present and former directors, officers, employees and agents to give the auditor, on demand, the information, explanations and access to records the auditor considers necessary. The access representation confirms a duty that already exists in law.

Approval is a separate act

Under section 158, the directors approve the financial statements, evidenced by the signature of one or more directors. A formal approval like that does not tell the auditor that each representation was consciously made, so the letter is still needed.

Errors found after the letter

Section 171 requires a director or officer to notify the audit committee and the auditor at once of any error or misstatement they become aware of in financial statements the auditor has reported on. The letter's date closes the representations, not that duty.

Reviews have their own letter

CSRE 2400 requires the practitioner to request a written representation that management believes the effects of uncorrected misstatements are immaterial, with a summary of them included or attached. The AASB added it; ISRE 2400 (Revised) has no comparable requirement. Do not send a review client this audit letter.

Where Canadian representation letters go wrong

Signed when fieldwork ended

The representations are dated as near as practicable to, but not after, the date of the auditor's report, and the report cannot be dated before them. A letter signed on the last day in the field leaves the weeks until the report unrepresented, and that is the period in which subsequent events come to light.

The auditor's wording, never read

The letter has to describe management's responsibilities the way the engagement letter described them, which is why the auditor drafts it. That does not make the words the auditor's. A controller handed thirteen confirmations on the afternoon the report is due has not considered them. Send the draft with the final adjustments, not after them.

A threshold carried forward

The auditor may give management a threshold for the representations, tied to the level below which misstatements are clearly trivial. It is a threshold for exceptions in the letter, not the materiality for the statements, and it belongs to this year's audit rather than last year's file.

Related letters

Audit Audit Compilation Compilation What it is Engagement letters Accounting Accounting

Questions about management representation letters

Who writes the management representation letter, the auditor or the client?

Management gives it; the auditor usually drafts it. It goes on the client's letterhead, is addressed to the auditor and is signed by the client, because the representations are the client's own. If any of them is not true as drafted, the letter should be modified to show the exception, not signed as it stands.

Who should sign it?

People with responsibility for the financial statements and knowledge of the matters in the letter. The standards name the chief executive and the chief financial officer, or their equivalents, as the people representations may be requested from. Someone who joined partway through the year still signs for the whole period: arriving late does not reduce the responsibility.

Can management add "to the best of our knowledge and belief"?

Yes. The auditor may accept that wording when the signers have the responsibilities and knowledge the letter assumes. A reconfirmation of the responsibilities agreed in the engagement letter is different: that part is not made subject to management's knowledge and belief.

What happens if management will not sign?

It depends which representation is refused. If management will not confirm that it has met its responsibility for the financial statements, or that it gave the auditor all relevant information and recorded every transaction, the auditor cannot express an opinion on the statements. Refusing a narrower representation makes the auditor reassess management's integrity and the rest of the evidence, and it can still change the opinion.

How do firms collect the signed letter?

As one item on the year-end request list, beside the trial balance, the confirmations and the schedules, so it is chased with everything else rather than remembered on the morning the report is dated. The client signs in ink or through the signing provider the firm already uses, then uploads the signed copy. FirmHello keeps that copy on the engagement's request list and in its document vault; it does not collect signatures itself.

Is this representation letter template enough on its own?

No. It is a starting point built on the auditing standard for Canada. Other standards add representations on their own subjects, the engagement will need its own, and a review or compilation follows a different standard altogether. Your methodology, your professional body's guidance and your own adviser should all see it before it is used.

Sources

The primary sources this page is written against, last read against it on . Check them before relying on a detail; rules and thresholds change.

  1. FRAS Canada The CPA Canada Handbook – Assurance contains the Canadian Auditing Standards set by the…
  2. IFAC ISA 580 (the standard CAS 580 is adopted from)
  3. IFAC ISA 240 para 39
  4. Justice Laws Website (Canada) CBCA s.158(1)
  5. CPABC CSRE 2400 (AASB staff Basis for Conclusions, April 2016)
  6. CPA Canada CAS 580 para 14

What changed

  • Added an editable Word (.docx) copy of the letter beside the PDF.

The letter is the easy half

Sending it, getting it back signed, and finding it again in two years is the half that eats the week. That is what the portal is for.

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