management representation letter tax audit

AS 2805: Management Representations

Amendments to footnote 1 to paragraph .02 have been adopted by the PCAOB and approved by the U.S. Securities and Exchange Commission. The amendments will be effective for audits of financial statements for fiscal years beginning on or after December 15, 2024. See PCAOB Release No. 2024-004 , SEC Release No. 34-100773 .  View the standard as amended .

Summary Table of Contents

• .01  Introduction
• .02  Reliance on Management Representations
• .05  Obtaining Written Representations
• .13  Scope Limitations
• .15  Effective Date
• .16  Appendix A - Illustrative Management Representation Letter
• .17  Appendix B - Additional Illustrative Representations
• .18  Appendix C - Illustrative Updating Management Representation Letter

Introduction

.01        This section establishes a requirement that the independent auditor obtain written representations from management as a part of an audit of financial statements performed in accordance with the standards of the PCAOB and provides guidance concerning the representations to be obtained.

Reliance on Management Representations

.02        During an audit, management makes many representations to the auditor, both oral and written, in response to specific inquiries or through the financial statements. Such representations from management are part of the evidential matter the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit. Written representations from management ordinarily confirm representations explicitly or implicitly given to the auditor, indicate and document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding concerning the matters that are the subject of the representations. 1

.03        The auditor obtains written representations from management to complement other auditing procedures. In many cases, the auditor applies auditing procedures specifically designed to obtain evidential matter concerning matters that also are the subject of written representations. For example, after the auditor performs the procedures described in AS 2410, Related Parties , the auditor should obtain a written representation that management has no knowledge of any relationships or transactions with related parties that have not been properly accounted for and adequately disclosed. The auditor should obtain this written representation even if the results of those procedures indicate that relationships and transactions with related parties have been properly accounted for and adequately disclosed. In some circumstances, evidential matter that can be obtained by the application of auditing procedures other than inquiry is limited; therefore, the auditor obtains written representations to provide additional evidential matter. For example, if an entity plans to discontinue a line of business and the auditor is not able to obtain sufficient information through other auditing procedures to corroborate the plan or intent, the auditor obtains a written representation to provide evidence of management's intent.

.04        If a representation made by management is contradicted by other audit evidence, the auditor should investigate the circumstances and consider the reliability of the representation made. Based on the circumstances, the auditor should consider whether his or her reliance on management's representations relating to other aspects of the financial statements is appropriate and justified.

Obtaining Written Representations

.05        Written representations from management should be obtained for all financial statements and periods covered by the auditor's report. 2 For example, if comparative financial statements are reported on, the written representations obtained at the completion of the most recent audit should address all periods being reported on. The specific written representations obtained by the auditor will depend on the circumstances of the engagement and the nature and basis of presentation of the financial statements. The auditor should provide a copy of the representation letter to the audit committee if management has not already provided the representation letter to the audit committee.

Note: When performing an integrated audit of financial statements and internal control over financial reporting, refer to paragraphs .75-.77 of AS 2201, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements , for additional required written representations to be obtained from management.

.06        In connection with an audit of financial statements presented in accordance with generally accepted accounting principles, specific representations should relate to the following matters: 3

Financial Statements

• Management's acknowledgment of its responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.
• Management's belief that the financial statements are fairly presented in conformity with generally accepted accounting principles.

Completeness of Information

• Availability of all financial records and related data, including the names of all related parties and all relationships and transactions with related parties.
• Completeness and availability of all minutes of meetings of stockholders, directors, and committees of directors.
• Communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
• Absence of (1) unrecorded transactions  and (2) side agreements or other arrangements (either written or oral) undisclosed to the auditor .

Recognition, Measurement, and Disclosure

• Management's belief that the effects of any uncorrected financial statement misstatements 4 aggregated by the auditor during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 5 (A summary of such items should be included in or attached to the letter.) 6 , 7
• Management's acknowledgment of its responsibility for the design and implementation of programs and controls to prevent and detect fraud.
• Knowledge of fraud or suspected fraud affecting the entity involving (1) management, (2) employees who have significant roles in internal control, or (3) others where the fraud could have a material effect on the financial statements.
• Knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others.
• Plans or intentions that may affect the carrying value or classification of assets or liabilities.
• Information concerning related party transactions and amounts receivable from or payable to related parties, including support for any assertion that a transaction with a related party was conducted on terms equivalent to those prevailing in an arm's-length transaction. 9
• Guarantees, whether written or oral, under which the entity is contingently liable.
• Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties .
• Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency. 10
• Unasserted claims or assessments that the entity's lawyer has advised are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies [AC section C59]. 11
• Other liabilities and gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5 [AC section C59]. 12
• Satisfactory title to assets, liens or encumbrances on assets, and assets pledged as collateral.
• Compliance with aspects of contractual agreements that may affect the financial statements.

  s-1 .    The appropriateness of the methods, the consistency in application, the accuracy and completeness of data, and the reasonableness of significant assumptions used by the company in developing accounting estimates.

Subsequent Events

• Information concerning subsequent events. 13

.07        The representation letter ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity's business or industry. Examples of additional representations that may be appropriate are provided in appendix B, "Additional Illustrative Representations" [paragraph .17].

.08        Management's representations may be limited to matters that are considered either individually or collectively material to the financial statements, provided management and the auditor have reached an understanding on materiality for this purpose. Materiality may be different for different representations. A discussion of materiality may be included explicitly in the representation letter, in either qualitative or quantitative terms. Materiality considerations would not apply to those representations that are not directly related to amounts included in the financial statements, for example, items ( a ), ( c ), ( d ), and ( e ) above. In addition, because of the possible effects of fraud on other aspects of the audit, materiality would not apply to item ( h ) above with respect to management or those employees who have significant roles in internal control.

.09        The written representations should be addressed to the auditor. Because the auditor is concerned with events occurring through the date of his or her report that may require adjustment to or disclosure in the financial statements, the representations should be made as of the date of the auditor's report. [If the auditor "dual dates" his or her report, the auditor should consider whether obtaining additional representations relating to the subsequent event is appropriate. See paragraph .05 of AS 3110, Dating of the Independent Auditor's Report ]. The letter should be signed by those members of management with overall responsibility for financial and operating matters whom the auditor believes are responsible for and knowledgeable about, directly or through others in the organization, the matters covered by the representations. Such members of management normally include the chief executive officer and chief financial officer or others with equivalent positions in the entity.

.10        If current management was not present during all periods covered by the auditor's report, the auditor should nevertheless obtain written representations from current management on all such periods. The specific written representations obtained by the auditor will depend on the circumstances of the engagement and the nature and basis of presentation of the financial statements. As discussed in paragraph .08, management's representations may be limited to matters that are considered either individually or collectively material to the financial statements.

.11        In certain circumstances, the auditor may want to obtain written representations from other individuals. For example, he or she may want to obtain written representations about the completeness of the minutes of the meetings of stockholders, directors, and committees of directors from the person responsible for keeping such minutes. Also, if the independent auditor performs an audit of the financial statements of a subsidiary but does not audit those of the parent company, he or she may want to obtain representations from management of the parent company concerning matters that may affect the subsidiary, such as related-party transactions or the parent company's intention to provide continuing financial support to the subsidiary.

.12        There are circumstances in which an auditor should obtain updating representation letters from management. If a predecessor auditor is requested by a former client to reissue (or consent to the reuse of) his or her report on the financial statements of a prior period, and those financial statements are to be presented on a comparative basis with audited financial statements of a subsequent period, the predecessor auditor should obtain an updating representation letter from the management of the former client. 15 Also, when performing subsequent events procedures in connection with filings under the Securities Act of 1933, the auditor should obtain certain written representations. 16 The updating management representation letter should state ( a ) whether any information has come to management's attention that would cause them to believe that any of the previous representations should be modified, and ( b ) whether any events have occurred subsequent to the balance-sheet date of the latest financial statements reported on by the auditor that would require adjustment to or disclosure in those financial statements. 17

Scope Limitations

.13        Management's refusal to furnish written representations constitutes a limitation on the scope of the audit sufficient to preclude an unqualified opinion and is ordinarily sufficient to cause an auditor to disclaim an opinion or withdraw from the engagement. 18 However, based on the nature of the representations not obtained or the circumstances of the refusal, the auditor may conclude that a qualified opinion is appropriate. Further, the auditor should consider the effects of the refusal on his or her ability to rely on other management representations.

.14        If the auditor is precluded from performing procedures he or she considers necessary in the circumstances with respect to a matter that is material to the financial statements, even though management has given representations concerning the matter, there is a limitation on the scope of the audit, and the auditor should qualify his or her opinion or disclaim an opinion.

Effective Date

.15        This section is effective for audits of financial statements for periods ending on or after June 30, 1998. Earlier application is permitted.

Appendix A - Illustrative Management Representation Letter

.16        

1.    The following letter, which relates to an audit of financial statements prepared in conformity with generally accepted accounting principles, is presented for illustrative purposes only. The introductory paragraph should specify the financial statements and periods covered by the auditor's report, for example, "balance sheets of XYZ Company as of December 31, 19X1 and 19X0, and the related statements of income and retained earnings and cash flows for the years then ended." The written representations to be obtained should be based on the circumstances of the engagement and the nature and basis of presentation of the financial statements being audited. ( See appendix B [paragraph .17]).

2.    If matters exist that should be disclosed to the auditor, they should be indicated by modifying the related representation. For example, if an event subsequent to the date of the balance sheet has been disclosed in the financial statements, the final paragraph could be modified as follows: "To the best of our knowledge and belief, except as discussed in Note X to the financial statements, no events have occurred" In appropriate circumstances, item 9 could be modified as follows: "The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities, except for its plans to dispose of segment A, as disclosed in Note X to the financial statements, which are discussed in the minutes of the December 7, 20X1, meeting of the board of directors." Similarly, if management has received a communication regarding an allegation of fraud or suspected fraud, item 8 could be modified as follows: "Except for the allegation discussed in the minutes of the December 7, 20X1, meeting of the board of directors (or disclosed to you at our meeting on October 15, 20X1), we have no knowledge of any allegations of fraud or suspected fraud affecting the company received in communications from employees, former employees, analysts, regulators, short sellers, or others."

3.    The qualitative discussion of materiality used in the illustrative letter is adapted from FASB Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information .

4.    Certain terms are used in the illustrative letter that are described elsewhere in authoritative literature. Examples are fraud, in AS 2401, Consideration of Fraud in a Financial Statement Audit , and related parties, in AS 2410,  Related Parties . To avoid misunderstanding concerning the meaning of such terms, the auditor may wish to furnish those definitions to management or request that the definitions be included in the written representations.

5.    The illustrative letter assumes that management and the auditor have reached an understanding on the limits of materiality for purposes of the written representations. However, it should be noted that a materiality limit would not apply for certain representations, as explained in paragraph .08 of this section.

To [ Independent Auditor ]

We are providing this letter in connection with your audit(s) of the [ identification of financial statements ] of [ name of entity ] as of [ dates ] and for the [ periods ] for the purpose of expressing an opinion as to whether the [ consolidated ] financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of [ name of entity ] in conformity with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation in the [ consolidated ] financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.

Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.

We confirm, to the best of our knowledge and belief, [ as of (date of auditor's report), ] the following representations made to you during your audit(s).

• The financial statements referred to above are fairly presented in conformity with accounting principles generally accepted in the United States of America.
• Financial records and related data, including the names of all related parties and all relationships and transactions with related parties.
• Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared.
• There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
• There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements.
• We believe that the effects of the uncorrected financial statement misstatements summarized in the accompanying schedule are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 1
• We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud.
• Management,
• Employees who have significant roles in internal control, or
• Others where the fraud could have a material effect on the financial statements.
• We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others.
• The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.
• Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties.
• Guarantees, whether written or oral, under which the company is contingently liable.
• Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties. [ Significant estimates are estimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year. ]
• Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.
• Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies . 2
• Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5.
• Side agreements or other arrangements (either written or oral) that have not been disclosed to you.
• The company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.
• The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

[ Add additional representations that are unique to the entity's business or industry. See paragraph .07 and appendix B [paragraph .17] of this section. ]

To the best of our knowledge and belief, no events have occurred subsequent to the balance-sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

____________________________________________ [ Name of Chief Executive Officer and Title ]

____________________________________________ [ Name of Chief Financial Officer and Title ]

[As amended, effective for audits of financial statements for periods beginning on or after December 15, 1999 by Statement on Auditing Standards No. 89. As amended, effective for audits of financial statements for periods beginning on or after December 15, 2002, by Statement on Auditing Standards No. 99.]

Appendix B - Additional Illustrative Representations

.17        

1.    As discussed in paragraph .07 of this section, representation letters ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity's business or industry. The following is a list of additional representations that may be appropriate in certain situations. This list is not intended to be all-inclusive. The auditor also should consider the effects of pronouncements issued subsequent to the issuance of this section.

Appendix C - Illustrative Updating Management Representation Letter

.18        

1.    The following letter is presented for illustrative purposes only. It may be used in the circumstances described in paragraph .12 of this section. Management need not repeat all of the representations made in the previous representation letter.

2.    If matters exist that should be disclosed to the auditor, they should be indicated by listing them following the representation. For example, if an event subsequent to the date of the balance sheet has been disclosed in the financial statements, the final paragraph could be modified as follows: "To the best of our knowledge and belief, except as discussed in Note X to the financial statements, no events have occurred. . . ."

    [ Date ]

    To [ Auditor ]

    In connection with your audit(s) of the [ identification of financial statements ] of [ name of entity ] as of [ dates ] and for the [ periods ] for the purpose of expressing an opinion as to whether the [ consolidated ] financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of [ name of entity ] in conformity with accounting principles generally accepted in the United States of America, you were previously provided with a representation letter under date of [ date of previous representation letter ]. No information has come to our attention that would cause us to believe that any of those previous representations should be modified.

    To the best of our knowledge and belief, no events have occurred subsequent to [ date of latest balance sheet reported on by the auditor ] and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

    __________________________________________ [ Name of Chief Executive Officer and Title ]

    __________________________________________ [ Name of Chief Financial Officer and Title ]

[Revised, October 2000, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 93.]

Footnotes (AS 2805 - Management Representations):

1 AS 1015, Due Professional Care in the Performance of Work , states, "The auditor neither assumes that management is dishonest nor assumes unquestioned honesty. In exercising professional skepticism, the auditor should not be satisfied with less than persuasive evidence because of a belief that management is honest."

2 An illustrative representation letter from management is contained in appendix A, "Illustrative Management Representation Letter" [paragraph .16].

3 Specific representations also are applicable to financial statements presented in conformity with a comprehensive basis of accounting other than generally accepted accounting principles. The specific representations to be obtained should be based on the nature and basis of presentation of the financial statements being audited.

4 AS 2810, Evaluating Audit Results, indicates that a misstatement can arise from error or fraud and also discusses the auditor's responsibilities for evaluating accumulated misstatements .

5 If management believes that certain of the identified items are not misstatements, management's belief may be acknowledged by adding to the representation, for example, "We do not agree that items XX and XX constitute misstatements because [description of reasons]." 

6 AS 2810.11 states that the auditor may designate an amount below which misstatements need not be accumulated. Similarly, the summary of uncorrected misstatements included in or attached to the representation letter need not include such misstatements. The summary should include sufficient information to provide management with an understanding of the nature, amount, and effect of the uncorrected misstatements. Similar items may be aggregated.

7 The communication to management of immaterial misstatements aggregated by the auditor does not constitute a communication pursuant to paragraph .17 of AS 2405, Illegal Acts by Clients , Section 10A of the Securities Exchange Act of 1934, or paragraphs .79 through .82 of AS 2401, Consideration of Fraud in a Financial Statement Audit . The auditor may have additional communication responsibilities pursuant to AS 2405, Section 10A of the Securities Exchange Act of 1934, or AS 2401.

[8] [Footnote deleted.]

9 See AS 2410.18. 

10 See AS 2405. 

11 See paragraph .05 d of AS 2505, Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments. If the entity has not consulted a lawyer regarding litigation, claims, and assessments, the auditor normally would rely on the review of internally available information and obtain a written representation by management regarding the lack of litigation, claims, and assessments; see auditing Interpretation No. 6, "Client Has Not Consulted a Lawyer" (paragraphs .15-.17 of AI 17, Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments: Auditing Interpretations of AS 2505 ) .

12 See AS 2505.05 b . 

13 See paragraph .12 of AS 2801, Subsequent Events , paragraph .10 of AS 4101, Responsibilities Regarding Filings Under Federal Securities Statutes , and paragraph .45, footnote 31 of AS 6101, Letters for Underwriters and Certain Other Requesting Parties . 

[14] [Footnote deleted.]

15 See paragraph .55 of AS 3105 , Departures from Unqualified Opinions and Other Reporting Circumstances .

16 See AS 4101.10. 

17 An illustrative updating management representation letter is contained in appendix C, "Illustrative Updating Management Representation Letter" [paragraph .18]. 

18 See AS 3105.05–.17. 

Footnotes (Appendix A - Illustrative Management Representation Letter):

1 If management believes that certain of the identified items are not misstatements, management's belief may be acknowledged by adding to the representation, for example, "We do not agree that items XX and XX constitute misstatements because [ description of reasons ]." 

2 In the circumstance discussed in footnote 11 of this section, this representation might be worded as follows:

    We are not aware of any pending or threatened litigation, claims, or assessments or unasserted claims or assessments that are required to be accrued or disclosed in the financial statements in accordance with Financial Accounting Standards Board Statement No. 5,  Accounting for Contingencies , and we have not consulted a lawyer concerning litigation, claims, or assessments.

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Draft Format of Engagement letter & Management representation on Tax Audit

Purpose: 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. However draft format of Draft Format of Engagement letter & Management representation on Tax Audit are as under:-

Draft Format of Engagement letter on Tax Audit

Date: XX/XX/2020

The Executive Director (Mention the name & Address of client)

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 “ ……….” 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.

• 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;
• Identifying and informing us of financial transactions or matters that may have any adverse effect on the tax compliance of the Company.
• Providing the required information completely and accurately in required formats.
• To provide us, inter alia, with:
• 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 matters.
• 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;
• 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
• All the required support to discharge our duties as the tax auditors.

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 M/s …... Chartered Accountants (Mention name & Designation of Partner)

Draft Format of Management Representation Letter –Tax Audit

[ON THE LETTER HEAD OF AUDITEE] Date: XX/XX/2020

M/s …... Chartered Accountants

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

Please find enclosed a copy of Form 3 CD along with 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

• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• We certify that there are no capital assets which are converted into stock in trade as stated in clause 15 of form 3 CD.
• We certify there is no capital receipt which is credited to Profit & Loss Account as stated in clause 16 of form 3 CD.
• We certify that the items falling within the scope of section 28 have been correctly stated in clause 16.
• 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.
• 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.
• 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.
• 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.
• 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.
• No Capital Expenses have been debited to any Revenue Accounts as stated in clause 21 (a) of form 3 CD.
• All the expenses incurred on during the Year by us are for the purpose of business only.
• No personal expenses, except those under contractual obligations or by generally accepted business practice, have been charged to the profit & loss account.
• 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.
• 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).
• 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).
• 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).
• We have not incurred any liability of a contingent nature as stated in Clause 21(g).
• No amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006 other than stated in Clause 22.
• All transactions with any related party within the meaning of section 40(A)(2)(b) of the Act, have been disclosed in Clause 23.
• 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.
• There is no amount of profit chargeable to tax u/s. 41 as disclosed under clause 25 of Form 3CD.
• All the statutory dues have been deposited on time as disclosed under clause 26.
• 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.
• 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.
• 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.
• 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.
• 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.
• There are no deductions under Chapter VI A other than those stated in Clause 33.
• 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).
• 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.
• Interest payable u/s 201(1A) and 206C(7) of the Act have been paid which have been disclosed in Clause 34(c).
• We certify that stock quantities furnished in Clause 35 of Form 3CD has been valued & certified by us.
• No Cost Audit was carried out during the relevant Assessment year as reported in the clause 37.
• No audit under Central Excise Act was carried out during the relevant Assessment year as reported in the clause 38.
• 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.
• The basis of calculation of ratios as specified in clause 40 of Form 3CD is correct.
• 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.
• 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/- Sd/- Name Name Director Director DIN- DIN- Place:- Date:-

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Gaurav Singla (Associate Manager) Category Income Tax   Report

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2023 Audit Representation Engagement Letter

An engagement letter is a contract that establishes the services a practitioner will provide to his or her clients. Each engagement requires careful consideration to address its particular circumstances.

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Demystifying ISA 580: Management Representation Letters in Auditing

Introduction: The Basics of Audit – Management Representation Letter (ISA 580)

In the intricate world of auditing, there exists a pivotal document known as the Management Representation Letter, guided by ISA 580. This document plays a central role in audits, acting as a conduit for communication between management and auditors. In this comprehensive exploration, we delve deep into the intricacies of the Management Representation Letter, covering all 19 key points outlined in the standard, from its purpose to the actions auditors must take in the face of challenges.

Detailed Analysis:

1. Understanding the Management Representation Letter

A Management Representation Letter, as stipulated by ISA 580, constitutes a formal statement presented by the management of the audited entity to the auditors. It can be furnished either spontaneously or in response to specific audit inquiries. These representations encompass a wide spectrum of subjects, ranging from general responsibilities related to the preparation of financial statements to specific assertions concerning items within the financial statements.

2. The Role of Management Representation as Audit Evidence

While Management Representation Letters hold undeniable importance, they cannot serve as a complete replacement for other audit evidence that auditors anticipate will be available. For select matters where no alternative evidence exists, such as determining whether investments are held as short-term or long-term, Management Representation can indeed function as sufficient and appropriate audit evidence.

3. Key ISA 580 Requirements

Revised ISA 580 introduces two significant stipulations:

• 3.1. In the event that a representation made by management contradicts other audit evidence, auditors are obligated to investigate the circumstances thoroughly and, if necessary, reassess the reliability of other representations provided by management.
• 3.2. If, during the course of the audit, management refuses to furnish a representation that auditors deem essential, this constitutes a scope limitation. Consequently, auditors are required to express a qualified opinion or a disclaimer of opinion.

4. Additional Vital Elements of Management Representation

• 4.1. The Management Representation Letter must be addressed directly to the auditor.
• 4.2. Its date should coincide with the date of the auditor’s report or precede it.
• 4.3. It should bear the signature of a member of management who bears primary responsibility for the preparation of financial statements and possesses pertinent knowledge in this regard.

5. Various Forms of Written Representation

Management Representation can assume various formats, including:

• 5.1. A straightforward representation provided by management.
• 5.2. A letter authored by auditors delineating their understanding of management’s representation, an acknowledgment of which is sought and obtained from management.
• 5.3. A duly authenticated copy of pertinent meetings involving the board of directors or analogous bodies.

6. The Effective Date of ISA 580

ISA 580 is effective for audits of financial statements for periods beginning on or after 1st April, 2009.

7. The Objectives of the Auditor

The objectives of the auditor, as per ISA 580, encompass:

• 7.1. Obtaining written representations from management and, where appropriate, those charged with governance, confirming their belief in fulfilling their responsibility for preparing the financial statements and ensuring the completeness of information provided to the auditor.
• 7.2. Supporting other audit evidence relevant to the financial statements or specific assertions in the financial statements through written representations, as determined necessary by the auditor or required by other SAs.
• 7.3. Responding appropriately to written representations provided by management and, where appropriate, those charged with governance, or if management or, where appropriate, those charged with governance do not provide the written representations requested by the auditor.

8. Definition of Written Representations

For purposes of the SAs, “Written representations” is defined as a written statement by management provided to the auditor to confirm certain matters or to support other audit evidence. Written representations, in this context, do not include financial statements, the assertions therein, or supporting books and records.

9. References to “Management” in the Standard

For purposes of this SA, references to “management” should be read as “management and, where appropriate, those charged with governance.” In the case of a fair presentation framework, management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework; or the preparation of financial statements that give a true and fair view in accordance with the applicable financial reporting framework.

10. Management from Whom Written Representations Requested

The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned.

11. Written Representations about Management’s Responsibilities for the Preparation of the Financial Statements

The auditor shall request management to provide a written representation that it has fulfilled its responsibility for the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation, as set out in the terms of the audit engagement.

12. Written Representations about Information Provided and Completeness of Transactions

The auditor shall request management to provide a written representation that:

• 12.1. It has provided the auditor with all relevant information and access as agreed in the terms of the audit engagement.
• 12.2. All transactions have been recorded and are reflected in the financial statements.

13. Description of Management’s Responsibilities in the Written Representations

Management’s responsibilities shall be described in the written representations required by paragraphs 9 and 10 in the manner in which these responsibilities are described in the terms of the audit engagement.

14. Other Written Representations

Other SAs may require the auditor to request written representations. If, in addition to such required representations, the auditor determines that it is necessary to obtain one or more written representations to support other audit evidence relevant to the financial statements or one or more specific assertions in the financial statements, the auditor shall request such other written representations.

15. Date of and Period(s) Covered by Written Representations

The date of the written representations shall be as near as practicable to, but not after, the date of the auditor’s report on the financial statements. The written representations shall be for all financial statements and period(s) referred to in the auditor’s report.

16. Form of Written Representations

The written representations shall be in the form of a representation letter addressed to the auditor. If law or regulation requires management to make written public statements about its responsibilities, and the auditor determines that such statements provide some or all of the representations required by paragraphs 9 or 10, the relevant matters covered by such statements need not be included in the representation letter.

17. Doubt as to the Reliability of Written Representations and Requested Written Representations Not Provided

• 17.1. If the auditor has concerns about the competence, integrity, ethical values, or diligence of management, or about its commitment to or enforcement of these, the auditor shall determine the effect that such concerns may have on the reliability of representations (oral or written) and audit evidence in general.
• 17.2. In particular, if written representations are inconsistent with other audit evidence, the auditor shall perform audit procedures to attempt to resolve the matter. If the matter remains unresolved, the auditor shall reconsider the assessment of the competence, integrity, ethical values, or diligence of management, or of its commitment to or enforcement of these, and shall determine the effect that this may have on the reliability of representations (oral or written) and audit evidence in general.

18. Requested Written Representations Not Provided

If management does not provide one or more of the requested written representations, the auditor shall:

• 18.1. Discuss the matter with management.
• 18.2. Re-evaluate the integrity of management and evaluate the effect that this may have on the reliability of representations (oral or written) and audit evidence in general.
• 18.3. Take appropriate actions, including determining the possible effect on the opinion in the auditor’s report in accordance with SA 705, having regard to the requirement in paragraph 19 of this SA.

19. Written Representations about Management’s Responsibilities

The auditor shall disclaim an opinion on the financial statements in accordance with SA 705 if:

• 19.1. The auditor concludes that there is sufficient doubt about the integrity of management such that the written representations required by paragraphs 9 and 10 are not reliable; or
• 19.2. Management does not provide the written representations required by paragraphs 9 and 10.

Conclusion: Unlocking the Significance of ISA 580

In conclusion, ISA 580, which revolves around the Management Representation Letter, is a comprehensive framework that ensures transparency, accountability, and reliability in the audit process. By covering all 19 points detailed in the standard, auditors can effectively navigate the complexities of this critical document. Understanding the nuances of ISA 580 empowers auditors to fulfill their duties with precision, integrity, and professionalism, ultimately enhancing the quality of financial reporting and instilling confidence in stakeholders.

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Name: CA Rahul Sharma

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