What is a management representation letter and do I have to sign it?

Purpose. Auditors ask for written confirmation of what management has told them. The letter does not replace audit evidence; it records management's responsibility and supports statements made during the audit.

What it usually covers

• directors acknowledge their responsibility for the financial statements and internal control;
• all accounting records and information were made available;
• all transactions are recorded, including related-party dealings;
• known or suspected fraud, non-compliance with laws, and legal claims have been disclosed;
• subsequent events and going concern assumptions have been considered;
• unadjusted differences are immaterial.

Link to the Act. Section 245 puts the duty to keep records on the company and directors, and section 248 puts the duty to prepare financial statements on the directors. Section 266(4) lets the auditor require information and explanations from officers.

Do you have to sign? The Companies Act does not compel a signature, but under the auditing standard on written representations (ISA 580) an auditor who cannot obtain the representations required must discuss it with management and consider the effect on the opinion, which can mean a modified opinion or a disclaimer.

Signing carefully

• Read it line by line and check each statement is true.
• Ask for time and explanations before signing.
• It is signed by directors, dated no later than the audit report.

Never sign a statement you know to be inaccurate; false statements to an auditor have legal consequences.