A management representation letter is a form letter written by a company's outside auditor and signed by the management of the client company. The letter attests to the accuracy of the financial statements supplied by the company to the auditor, and that all information relevant to the financial statements has been disclosed to the auditor. The letter is signed following the completion of audit fieldwork, and before the financial statements are issued along with the auditor's opinion.
The intent of the management representation letter is to shift some of the legal burden of issuing inaccurate financial statements from the auditor to the company. For this reason, the statements that the auditor includes in the letter is quite broad ranging, encompassing every possible area in which management's failings could lead to the issuance of inaccurate or misleading financial statements.
The statements commonly included in a management representation letter include the following:
- The financial statements conform to the applicable accounting framework
- All financial records have been made available to the auditor
- All board and shareholder meeting minutes have been made available to the auditor
- No regulatory agencies have contacted the company about reporting or other issues
- All material transactions have been properly recorded
- The effects of all uncorrected misstatements have an immaterial effect on the financial statements
- Management is responsible for systems designed to detect and prevent fraud
- Management has no knowledge of fraud within the company
- Management does not intend to make changes that will impact the value of company assets or liabilities
- All risks and uncertainties, related party transactions, and contingent liabilities have been properly recorded
- There are no undisclosed legal violations
- The company has disclosed all liens and other encumbrances on its assets
A management representation letter may also be called a rep letter, representation letter, client representation letter, or letter of representation.