The main purpose of Management Representation Letter on various matters is to focus the management’s attention on those matters so that the management can specifically address those matters in more detail than would otherwise be the case.
However the Auditor needs to understand the limitations of management representations as audit evidence. Getting a Management Representation Letter does not absolve the auditor of its responsibilities. He has to exercise professional care in conducting the audit.
Article contains Draft Format of Engagement letter on Statutory Audit and Draft Format of Management Representation letter on Statutory Audit-
The Executive Director
(Mention the name & Address of client)
Sub: Engagement Letter for conducting Statutory Audit for the financial year…………
You have requested vide your letter no. dated , that we audit the Balance Sheet of (Mention the name of Company). (Hereinafter referred as “Company”) as at 31st March and the related Profit & Loss Account for the year ended on the date. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements.
We will conduct our audit in accordance with the auditing standards generally accepted in India and with the requirements of the relevant statute. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
However, having regard to the test nature of an audit, persuasive rather than conclusive nature of audit evidence together with inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements of financial statements, resulting from fraud, and to lesser extent error, if either exists, may remain undetected.
In addition to our report on the financial statements, we expected to provide you with a separate letter concerning any material weakness in accounting and internal control system, which might come to our notice.
The responsibility for the preparation of financial statements on a going concern basis is that of the management of the company. The management is also responsible for selection and consist application of appropriate accounting policies, including implementation of applicable accounting standards along with proper explanation relating to any material departures from those accounting standards. The management is also responsible for making judgments and estimates that are reasonable and prudent as to give a true and fair view of the state of affairs of the institute at the end of the financial year and of the surplus or deficit of the institute for that period. Further, the management is also responsible for the identifying and ensuring that the institute complies with the laws and regulations applicable to its activities.
The responsibility of the management also includes the maintenance of adequate accounting records and internal controls for safeguarding of the assets of the company and for the preventing and detecting fraud of irregularities. Further, the management is also responsible for adjusting the financial statements to correct material misstatements identified by us. As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit at the conclusion of our audit.
Our fees will be billed as follows”
The total audit fee of Rs…… (Excluding GST) (Rupees………………only) which will be billed on submission of the audit report.
We wish to emphasis that our audit report would be exclusively for income tax and Registrar of company’s purposes. We shall not be liable for any way to any third party to whom you may make the audit report available.
We also wish to invite your attention to the fact that our audit process is subject to “peer review” under the Chartered Accountants Act, 1949. The reviewer may examine our working papers during the course of the peer review.
We look forward to full cooperation with your staff and we trust that they will make available to us whatever records; documentation and other information as requested in connection with our audit.
This letter will be effective for future years unless it is terminated, amended of superseded.
If the forgoing is in accordance with your understanding, please sign the copy of this letter in the space provided and return it to us.
For M/s XYZ & Co.
(Mention name & Designation of Partner)
[ON THE LETTER HEAD OF AUDITEE]
M/s XYZ & Co.
Sub: Management Representation in course of Statutory Audit for A.Y.
This representation letter is provided in connection with your audit of the financial statements of………………………………………..(Name of company) for the year ended 31.03.2020 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of………………………. (Name) as on 31.03.2020 and of the results of operations for the year ended.
We acknowledge our responsibility for preparation of financial statements in accordance with the requirements of the Companies Act, 2013 and recognized accounting policies and practices, including the Accounting Standards issued by the Institute of Chartered Accountants of India.
We confirm, to the best of our knowledge and belief, the following representations;
1. Accounting Policies:
1. The accounting policies which are material or critical in determining the results of operations for the year or financial position is set out in the financial statements are consistent with those adopted in the financial statements for the previous year. The financial statements are prepared on accrual basis except discounts claims and rebates, which cannot be determined with certainty in the respective accounting year.
2. Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable.
3. All events subsequent to the date of the financial statements and for which applicable accounting standards in India require adjustment or disclosure have been adjusted or disclosed.
4. The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole.
5. We have fulfilled our responsibilities, as set out in the terms of the audit engagement, for the preparation of the financial statements in accordance with Financial Reporting Standards; in particular, the financial statements give a true and fair view in accordance with the applicable accounting standards in India.
1. The company has satisfactory title to all assets.
2. The company has satisfactory title to all assets and is subject to first charge to ________ for securing the working capital loan/ Term loan.
3. Fixed Assets
The net book values at which fixed assets are stated in the balance sheet are arrived at;
1. After taking into account all capital expenditure on additions thereto, but no expenditure being chargeable to revenue.
2. After eliminating the cost and accumulated depreciation relating to items sold, discarded, demolished or destroyed.
3. After providing adequate depreciation on fixed assets during the period.
4. Capital Commitments
At the balance sheet date, there were no outstanding commitments for capital expenditure.
1. The company does not have any investments.
2. All the investments shown in the balance sheet are “Long Term Investment’.
3. Long-term quoted investments are valued cost less provision for permanent diminution in their value.
4. Long term unquoted investments are valued at cost.
5. All the investments belong to the entity and they do not include any investments held on behalf of any other persons.
6. The entity has clear title to all of its investments. There are no charges against the investments of the entity except those appearing in the records of the entity.
1. Inventories at the year-end consisted of the following:
|Raw Materials & consumables|
2. All quantities were determined by actual physical count or weight that was taken under our supervision and in accordance with written instructions, on 31.3.2020.
3. All goods included in the inventory are the property of the entity, and none of the goods are held as consignee for others or as bailee.
4. All inventories owned by the entity, wherever located, have been recorded.
5. Inventories do not include goods sold to customers for which delivery is yet to be made.
6. Inventories have been valued at cost or net-realizable value, whichever is less.
7. In our opinion, there is no excess, slow moving, damaged or obsolete inventories, hence no provision is required to be made.
8. No item of inventories has a net realizable value in the ordinary course of business, which is less than the amount at which it is included in inventories.
7. Debtors, Loans and Advances
The following items appearing in the books as at 31.3.2020 are considered good and fully recoverable.
|Net Sundry Debtor|
|Loans and Advances||Considered good|
|Net Loans and Advances|
1. We have recorded all known liabilities in the financial statements except retirement benefits, discounts claims and rebates.
2. We have disclosed in Notes on Accounts all guarantees that, if any we have given to third parties.
3. There are no Contingent Liabilities as on 31.3.2020, if yes, relevant documents have been provided during the audit.
9. Provisions for Claims and Losses
1. There are no known losses and claims of material amounts for which provision is required to be made.
2. There have been no events subsequent to the balance sheet date which require adjustment of or disclosure in, the financial statements or notes thereto.
1. The following have been properly recorded and, when appropriate, adequately disclosed in the financial statements;
2. Loss arising from sale and purchase commitments.
3. Agreements and options to buy back assets previously sold.
4. Assets pledged as collateral.
5. All transactions have been recorded in the accounting records and are reflected in the financial statements.
6. 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.
7. The financial statements are free of material misstatements, including omissions.
8. The Company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non-compliance. 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.
9. We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements.
10. The allocation between capital and revenue has been correctly done and that no items of capital nature have been debited to Statement of Profit & Loss and vice versa.
11. The Cash balance as on 31.3.2020 has been physically verified by the management at Rs…………………..
12. The details of disputed dues in case of GST/VAT/sales tax/ income tax/ customer tax/ excise duty/ cess/PF/ESI which have not been deposited on account of dispute is as under:
|Name of Statue||Nature of the Dues||Amount||F. Y. to which the amount relates||Forum where dispute is pending|
13. The company has not defaulted in repayment of dues to financial institution or bank.
14. The company has not given any guarantee for loans taken by others from bank or financial institutions.
15. No personal expenses have been charged to revenue accounts .
16. We have provided you with:
17. 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;
18. Additional information that you have requested from us for the purpose of the audit; and
19. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence.
20. 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.
21. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of applicable accounting standards in India. We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware.
22. The payments covered under section 40A (3) were made by account payee cheques drawn on a bank or account payee bank draft.
23. All the loans, deposits or specified sum exceeding the limit specified in section 269SS/T are accepted or repaid through an account payee cheque or an account payee bank draft.
24. The information regarding applicability of MSMED Act 2006 to the various supplier/parties has not been received from the suppliers. Hence information as required vide clause 22 of chapter V of MSMED Act 2006 is not being given.
25. The loans taken from directors of the company or their relatives are out of their own funds and not any borrowed funds in pursuance of relevant provisions of Companies Act, 2013. Necessary declarations in this behalf have been obtained by the company from them.
By order of the Board
For «Name of company»