Auditing Chapter 5 - Management Representation

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Purpose of a Management Representation Letter:

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a. To confirm representations explicitly or implicitly given to the auditor
b. To indicate and document the continuing appropriateness of such representations
c. To reduce the possibility of misunderstanding concerning matters those are the subject of the representations.

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II) What are the requirements for a management representation letter

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a. All Matters have been adequately disclosed to the independent auditor
b. It is the final piece of evidential matter. If not given  scope limitation
c. Should address all financial statements and periods covered by the report
d. Letter is Mandatory
e. Dated Same Date as Audit Report
f. Signed by CEO and CFO
g. Provide information on the financial statements, the completeness of information, recognition, measurement, and disclosure, and subsequent events

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III) What are the content of a management representation letter regarding financial statements?

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a. Management’s acknowledgement of its responsibility for the fair presentation in the financial statement of financial position, results of operations, and cash flows in conformity with GAAP.
b. Management’s belief that the financial statements are fairly presented in conformity with GAAP.

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IV) What are the content of a management representation letter regarding completeness of information?

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a. Availability of all financial records and related data
b. Completeness and available of all minutes of the meetings of stockholders, directors, and committees of directors
c. There has been no communication from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
d. Absence of unrecorded transactions

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V) What are the content of a management representation letter regarding recognition, measurements, and disclosures?

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a) Belief that the effects of any uncorrected misstatement aggregated by an auditor are immaterial both individually and in aggregate to the financial statement taken as a whole.

b. Information concerning fraud involving management, employee with significant roles in internal control, or when it has material effect on f.s

c. Plans or intentions that may affect the carrying value or classification of assets and liabilities

d. Information concerning Related – Party Transaction

e. Guarantees

f. Significant Estimates

g. Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements

h. Unasserted claims or assessments

i. Other Liabilities and gain or loss contingencies

j. Satisfactory titles to assets, lien, or encumbrance on assets, and assets pledged as collateral

k. Compliance with aspects of contractual agreements that may affect financial statements.