Draft Format Engagement letter & Management representation on Tax Audit

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 Tax Audit and Draft Format of Management Representation letter related to Tax Audit –

Draft Format of Engagement letter on Tax Audit

Date: XX/XX/2020

To,

The Executive Director

(Mention the name & Address of client)

Dear Sir,

We refer to the letter dated      informing us about our (re) appointment as the tax auditors of the Company/Partnership/LLP/individual. You have requested our firm “XYZ & Co.” to do the tax audit of the Company/ Partnership/LLP/individual as defined in Section 44AB of the Income Tax Act, 1961, for the previous year(s) ending March 31, 2020. The tax audit of the Company/Partnership/LLP/individual include issuance of Tax Audit Report in Form Nos. 3CA/3CB and 3CD & filing the same with Income Tax Department. We are pleased to confirm our acceptance and our understanding of this audit engagement by means of this letter.

Our audit will be  conducted  for  the  purpose  to  ascertain/derive/report  the  requirements  of Form  Nos. 3CA/3CB and 3CD, to ensure that the books of account and other records are properly maintained, that they truly reflect the income of the taxpayer and claims for deduction/relief are correctly made by him & to checking fraudulent practices. In ascertaining/deriving/reporting the requirements of tax audit, we will rely on the work of statutory auditors appointed by the Company, to the extent it will required.

We will conduct the tax audit in accordance with the Provisions of Income Tax Act, 1961 & rules and regulations made thereunder. This tax audit involves performing procedures to ascertaining/deriving/reporting the requirements and the disclosures required in Form 3CA/CB & 3CD. Tax audit also includes evaluating the compliances with the provisions of Income Tax, TDS and with other laws.

Form 3CD should be duly filled & authenticated by the Management. We will only verify and confirm the same & on that basis form our opinion & issue the report in Form 3CA/3CB as the case may be.

This tax audit will be conducted on the basis that the Management and those charged with governance (Audit Committee / Board) acknowledge and understand that they have the responsibility:

1. For the preparation of tax audit report that give assurance in accordance with the provision of the Act, This includes:

• Compliance with the applicable provisions of the Income Tax Act, TDS Provisions & GST Provisions;
• Proper maintenance of accounts and other matters connected therewith;

2. Identifying and informing us of financial transactions or matters that may have any adverse effect on the tax compliance of the

3. Providing the required information completely and accurately in required

4. To provide us, inter alia, with:

a. Access, at all times, to all information, including the books, accounts, vouchers and other records and documentation of the Company, whether kept at the Head Office or elsewhere, of which the Management is aware that are relevant to the “books of account” such as records, documentation and other

b. Access to reports, if any, relating to internal reporting on frauds (e.g., vigil mechanism reports etc.), including those submitted by cost accountant or company secretary in practice;

• Additional information that we may request from the Management for the purposes of our audit;

1. Unrestricted access to persons within the Company from whom we deem it necessary to obtain audit evidence. This includes our entitlement to require from the officers of the Company such information and explanations as we may think necessary for the performance of our duties as the tax auditors of the Company; and

2. All the required support to discharge our duties as the tax

As part of our audit process, we will request from the Management written confirmation concerning representations made to us in connection with our audit.

Our report prepared in accordance with relevant provisions of the Act would be addressed to the Company. The form and content of our report may need to be amended in the light of our audit findings.

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 will be exclusively for income-tax 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.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangement for our audit of the financial statements.

Thanking you

Yours faithfully

For ……..

Chartered Accountants

 (Mention name & Designation of Partner)

Draft Format of Management Representation letter on Tax Audit

[ON THE LETTER HEAD OF AUDITEE]

Date: XX/XX/2020

To,

M/s ……

Chartered Accountants

Sub: Management Representation in course of Tax Audit for A.Y……

Sir,

Please find enclosed a copy of Form 3 CD alongwith all relevant details for the purpose of conducting the Tax Audit of XYZ Company, for the year ended 31st March, 2020.  In this connection, we further confirm that

1. The address that we have reported in Clause 2 of the form 3CD is same as we have informed to the income tax department, there is no change in the same.

2. That the registration or identification number, if any, under indirect tax laws including excise duty, goods & service tax, sales tax, customs duty, etc. as informed to you and reported in Clause 4 of Form 3CD are correct and there is no other number other than what is reported in said clause.

3. We certify, there has been no change in the partners or members or in their profit sharing ratio since the last date of the preceding year during the year under report as stated in clause 9 (b) of form 3 CD.

4. We certify, there has been no change in the nature of business during the year under report as stated in clause 10 (a) of form 3 CD.

5. That the List of books of account as prescribed u/s 44AA have been maintained and the address at which the books of accounts are kept as reported in Clause 11 has been informed by us and there are no other books and no other location at which books are kept.

6. We confirm that the profit and loss account does not include any profits and gains assessable on presumptive basis under relevant sections 44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB or any other relevant section as stated in clause 12 of form 3 CD.

7. The company has followed the mercantile system of accounting & there is no change in the method of accounting employed in the immediately preceding previous year, for the preparation of final accounts for the financial year 2019-2020 as stated in clause 13 of form 3 CD.

8. We certify that the valuation of closing stock is on the same basis & there is no deviation from the method of valuation prescribed under section 145A as stated in clause 14 of form 3 CD.

9. We certify that there are no capital assets which are converted into stock in trade as stated in clause 15 of form 3 CD.

10. We certify there is no capital receipt which is credited to Profit & Loss Account as stated in clause 16 of form 3 CD.

11. We certify that the items falling within the scope of section 28 have been correctly stated in clause 16.

12. That there is no land or building or both which is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, other than what is informed by us and has been reported in Clause 17 of Form 3CD.

13. We follow a policy of capitalizing an asset only after the asset has been purchased and has been put to use. The date on which the asset is put to use is as certified by us in Clause 18 of Form 3CD.

14. We certify that particulars of depreciation allowable as per the Income-tax Act, 1961 in respect of each asset or block of assets, as the case may be are correct.

15. We certify that there is no sum paid to an employee as bonus or commission for service rendered, where such sum was otherwise payable to him as profit or dividend as stated in clause 20 of form 3 CD.

16. The employee’s and employer’s share contributed towards provident fund, pension fund and ESI, date of deposit and amount of deposit is correctly stated in clauses 20 (b) of Form 3CD.

17. No Capital Expenses have been debited to any Revenue Accounts as stated in clause 21 (a) of form 3 CD.

18. All the expenses incurred on during the Year by us are for the purpose of business only.

19. No personal expenses, except those under contractual obligations or by generally accepted business practice, have been charged to the profit & loss account.

20. We certify that there is no expenditure on advertisement in any souvenir, broucher, tact, pamphlet etc. published by a political party. Further we confirm that we have not made any expenditure at clubs.

21. There have been no amounts in the nature of penalties or fines levied on us other than what has been disclosed in Clause 21 (a).

22. We have not made any payments otherwise than Account payee cheque, above Rs. 10,000/- (Rs.35,000 in case of Transporters) covered u/s 40A(3) or Section 40A(3A) during the year except those which have been disclosed in Clause 21(d).

23. No sums have been paid by the company as an employer which is not allowable U/s 40A (7) of the Income Tax Act, 1961 as stated in Clause 21(e).

24. We have not incurred any liability of a contingent nature as stated in Clause 21(g).

25. No amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006 other than stated in Clause 22.

26. All transactions with any related party within the meaning of section 40(A)(2)(b) of the Act, have been disclosed in Clause 23.

27. No amounts deemed to be profits and gains under section 32AC or 32AD or 33AB or 33ABA or 33AC other than stated in Clause 24.

28. There is no amount of profit chargeable to tax u/s. 41 as disclosed under clause 25 of Form 3CD.

29. All the statutory dues have been deposited on time as disclosed under clause 26.

30. That during the previous year we have not received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia) under clause 28 of Form 3CD.

31. That during the previous year we have not received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib) under clause 29 of Form 3CD.

32. That we have not accepted or repaid any amount borrowed on hundi or any amount due thereon in contravention to Section 269SS and 269T of the Act (including interest on the amount borrowed), otherwise than through an account payee cheque, bank draft, Online payments as stated in clause 30 & 31 of Form 3CD.

33. That we have not incurred any loss referred to in section 73A of the Act in respect of any specified business during the previous year as stated in clause 32 of Form 3CD.

34. That the company is not deemed to be carrying on a speculation business as referred in explanation to section 73 as stated in clause 32 of Form 3CD.

35. There are no deductions under Chapter VI A other than those stated in Clause 33.

36. The taxes deducted at source by us under the provisions of the Income-tax Act during the year have been paid to the Central Government except those which have been disclosed in Clause 34(a).

37. The statement of tax deducted or collected contains information about all transactions which are required to be reported under Clause 34(b) of the Form 3CD.

38. Interest payable u/s 201(1A) and 206C(7) of the Act have been paid which have been disclosed in Clause 34(c).

39. We certify that stock quantities furnished in Clause 35 of Form 3CD has been valued & certified by us.

40. No Cost Audit was carried out during the relevant Assessment year as reported in the clause 37.

41. No audit under Central Excise Act was carried out during the relevant Assessment year as reported in the clause 38.

42. No audit was conducted under section 72A of the Finance Act, 1994 in relation to valuation of taxable services during the relevant Assessment year as reported in clause 39.

43. The basis of calculation of ratios as specified in clause 40 of Form 3CD is correct.

44. That there is no demand raised or refund issued during the previous year under any tax laws other than Income Tax Act, 1961 and Wealth tax Act, 1957 as required in Clause 41.

45. We also certify information furnished in Clause 1 to 44 & Annexures 1 to ….. of Form 3CD are true and correct.

By order of the Board

For «Name of company»

Sd/-
Name
Director
DIN-

Sd/-
Name
Director
DIN-

Place:-

Date:-

Disclaimer:-

The above articles on the basis of the available study material & my understanding. Anyone opinion may differ from my opinion.