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For auditors and the clients they audit

A management representation letter that management has actually read

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. For audits of nonissuers, AU-C 580 says what it must cover and when it is dated. For issuers, the PCAOB's AS 2805 does the same job.

Last reviewed against 3 primary sources.

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Management representation letter

The full letter in Word and PDF, written for the United States, 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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AU-C 580 is plain about its weight. Written representations are audit evidence, but they do not provide sufficient appropriate evidence on their own for anything they cover. The letter cannot replace a procedure. What it does is put management's signature under the responsibilities it accepted in the engagement letter, and confirm that it has met them.

The representation letter template below follows the structure of the AICPA's illustrative letter, as amended for accounting estimates by SAS No. 143. 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 accountants, send the draft the same way, so the signed copy comes back to the file it belongs in.

The management representation letter

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

[Client letterhead]

[Date: 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], which comprise the balance sheet as of [date] and the related statements of income, changes in stockholders' equity and cash flows for the year then ended, and the related notes, for the purpose of expressing an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with [accounting principles generally accepted in the United States of America].

Certain representations in this letter are limited to matters that are material. Misstatements, including omissions, are material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

[Only if agreed with you: Except where stated otherwise, matters of less than $[amount] in total are not treated as exceptions for the purpose of these representations. This amount is not indicative of what would require adjustment to or disclosure in the financial statements, and it does not apply to representations that are not about amounts, including our acknowledgement of responsibility for internal control to prevent and detect fraud.]

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,] as of [the date of the auditor's report]:

The financial statements

1. We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated [date], for the preparation and fair presentation of the financial statements in accordance with [U.S. GAAP / the applicable framework].

2. We acknowledge our responsibility for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

3. We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud.

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

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

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

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

8. The effects of all known actual or possible litigation and claims have been accounted for and disclosed in accordance with [the applicable framework].

Information provided

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

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

11. 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.

12. We have [no knowledge of any] [disclosed to you all information that we are aware of regarding] fraud or suspected fraud 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.

13. We have [no knowledge of any] [disclosed to you all information that we are aware of regarding] allegations of fraud, or suspected fraud, affecting the financial statements communicated by employees, former employees, analysts, regulators or others.

14. 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.

15. We [have disclosed to you all known actual or possible] [are not aware of any pending or threatened] litigation, claims and assessments whose effects should be considered when preparing the financial statements.

16. 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 carrying value of long-lived assets, or on side agreements. Delete this section if there are none.]

Signed

[Name], [Chief Executive Officer]

Signature ______________________

[Name], [Chief Financial Officer]

Signature ______________________

Attachment: list 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.

Where representation letters go wrong

Dated before the report

AU-C 580 dates the letter as of the date of the auditor's report, and the report cannot be dated before it. A letter signed when fieldwork closed leaves the weeks in between unrepresented. If a signer cannot sign that day, the auditor may accept oral confirmation that they have reviewed the final letter and will sign it as of the report date, but the signed letter has to be in hand before the report is released.

The auditor's draft, signed unread

The standard asks management to confirm it has met its responsibilities because the auditor cannot judge that from other evidence alone. A signer who has not read the draft has confirmed nothing. Send it early enough for the chief financial officer to question it, and expect edits where it is wrong.

A threshold nobody agreed

Representations may be limited to material matters, and a dollar threshold may appear in the letter, but only where management and the auditor have reached an understanding on it. It does not reach representations that are not about amounts, and it is not the materiality for the statements. A figure copied from last year's letter meets none of those tests.

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 the United States. 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. AICPA AU-C 580 (AICPA)
  2. AICPA SAS No. 143 amends AU-C 580 .16
  3. PCAOB PCAOB AS 2805 Management Representations

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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