Question

What is a representation letter? What are its parts and what is it used for?

Answer 1

A representation letter is a form of management letter written by a company's external auditors, which is signed by senior company management and the Accounts Head or CEO. This letter attests to the accuracy of the financial statements which the company has submitted to the auditors for their analysis purpose.

The management representation letter commonly contains statements which includes the following:

a) The financial statements conforms the applicable framework of accounting

b) It confirms that all financial records have been made available to the auditor

c) The statements provides are not through any contracted regulatory agency.

d) All board meetings minutes are being made available to the auditor

e) The accounting system is designed as per detection and prevention of fraud

f) The representation letter confirms that management do not have any knowledge of fraud in the company

g) The statement provided to the Auditors contains all the material transactions

h) Management does not make changes intentionly that will effect the company assets or liabilities

i) If any uncorrected misstatements exists that have an immaterial effect on the financial statements

j) The accounts have been properly recorded towards all risks and uncertainties, related party transactions, and contingent liabilities

The representation letter has attestation towards all the accuracy of the financial statements so submitted to the auditors for their analysis.

The representation letter is used to declare in writing by the company's management that all the financial statements and other records submitted to the auditor are sufficient and appropriate and no material facts to the financial statements have been omitted to the best of the management's knowledge.