[This representation letter is provided in connection with your audit of the financial report of [name of entity] for the [period] ended [date], for the purpose of you expressing an opinion as to whether the financial report is, in all material respects, presented fairly in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations)[and, when appropriate, relevant statutory and other requirements].[1]
We acknowledge our responsibility for ensuring that the financial report is in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) [and, when appropriate, relevant statutory and other requirements],1 and confirm that the financial report is free of material misstatements, including omissions.]
OR
[This representation letter is provided in connection with your audit of the financial report of [name of entity] for the [period] ended [date], for the purpose of you expressing an opinion as to whether the financial report is, in all material respects, in accordance with:
(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the [company/entity]’s financial position as at [date] and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and
(b) other mandatory professional reporting requirements in Australia.
We acknowledge our responsibility for ensuring that the financial report is in accordance with:
(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the [company/entity]’s financial position as at [date] and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and
(b) other mandatory professional reporting requirements in Australia,
and confirm that the financial report is free of material misstatements, including omissions.]
We confirm, to the best of our knowledge and belief, the following representations made to you during your audit.
[Include representations relevant to the entity. Such representations may include the following examples.]
We have made available to you:
(a) all financial records and related data, other information, explanations and assistance necessary for the conduct of the audit; and
(b) minutes of all meetings of [shareholders, directors, committees of directors].
There:
(a) has been no fraud, error or non-compliance with laws and regulations involving management or employees who have a significant role in internal control;
(b) has been no fraud, error or non-compliance with laws and regulations that could have a material effect on the financial report; and
(c) have been no communications from regulatory agencies concerning non-compliance with, or deficiencies in, financial reporting practices that could have a material effect on the financial report.
We acknowledge our responsibility for the design and implementation of internal control to prevent and detect error. We have established and maintained adequate internal control to facilitate the preparation of a reliable financial report, and adequate financial records have been maintained. There are no material transactions that have not been properly recorded in the accounting records underlying the financial report.
We believe the effects of those uncorrected financial report misstatements aggregated by the auditor during the audit are immaterial, both individually and in the aggregate, to the financial report taken as a whole. A summary of such items is attached.
We have no plans or intentions that may materially affect the carrying values, or classification, of assets and liabilities.
We have considered the requirements of [AASB 136, “Impairment of Assets”,] when assessing the impairment of assets and in ensuring that no assets are stated in excess of their recoverable amount.
The following have been properly recorded and/or disclosed in the financial report:
(a) related party transactions and related amounts receivable or payable, including sales, purchases, loans, transfers, leasing arrangements and guarantees (written or oral);
(b) share options, warrants, conversions or other requirements;
(c) arrangements involving restrictions on cash balances, compensating balances and line-of-credit or similar arrangements;
(d) agreements to repurchase assets previously sold;
(e) material liabilities or contingent liabilities or assets including those arising under derivative financial instruments;
(f) unasserted claims or assessments that our lawyer has advised us are probable of assertion; and
(g) losses arising from the fulfilment of, or an inability to fulfil, any sale commitments or as a result of purchase commitments for inventory quantities in excess of normal requirements or at prices in excess of prevailing market prices.
There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial report or as a basis for recording an expense.
The entity has satisfactory title to all assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral. Allowances for depreciation have been adjusted for all important items of property, plant and equipment that have been abandoned or are otherwise unusable.
The entity has complied with all aspects of contractual agreements that would have a material effect on the financial report in the event of non-compliance.
There were no material commitments for construction or acquisition of property, plant and equipment or to acquire other non-current assets, such as investments or intangibles, other than those disclosed in the financial report.
We have no plans to abandon lines of product or other plans or intentions that will result in any excess or obsolete inventory, and no inventory is stated at an amount in excess of net realisable value.
No events have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in, the financial report.
We understand that your examination was made in accordance with Australian Auditing Standards and was, therefore, designed primarily for the purpose of expressing an opinion on the financial report of the entity taken as a whole, and that your tests of the financial records and other auditing procedures were limited to those which you considered necessary for that purpose.
Yours faithfully
\[Name of signing officer and title\]
Notes:
[The above example representation letter may need to be amended in certain circumstances. The following illustrate some of those situations.]
(a) Exceptions
Where matters are disclosed in the financial report, the associated representation needs to be amended, for example:
If a subsequent event has been disclosed, Item 13 could be modified to read:
“Except as discussed in Note X to the financial report, no events have occurred .…”.
If the entity has plans that impact the carrying values of assets and liabilities, Item 11 could be modified to read:
“The entity has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities, except for our plan to dispose of segment X, as disclosed in note Y in the in the financial report, which is discussed in the minutes of the meeting of the governing body held on [date]”.
(b) Other Required Information
Certain entities may be required to include other information in the financial report, for example, performance indicators for government entities. In addition to identifying this information and the relevant reporting framework in paragraphs 1 and 2 of the example letter, an additional paragraph similar to the following may be appropriate:
“The disclosures of key performance indicators have been prepared and presented in conformity with [relevant statutory requirements] and we consider the indicators reported to be relevant to the stated objectives of the [entity]”.
(c) Management’s Opinions and Representation in the Notes to the Financial Statements
Where the notes to the financial statements include opinions and representations by management, such matters could be addressed in the letter. For example, notes relating to the anticipated outcome of litigation, the intent and ability to hold long-term securities to maturity and plans necessary to support the going concern basis.
(d) Environmental Matters
In situations where there are environmental matters that may, but probably will not, require an outflow of resources, this could be reflected in an addition to Item 7, for example:
“However, the [entity] has received a notice from the Environmental Protection Agency that it may be required to share in the cost of cleanup of the [name] waste disposal site. This matter has been disclosed in Note A in the financial report and we believe that the disclosure and estimated contingent loss is reasonable based on available information”.
(e) Compliance
If as part of the audit, the auditor is also required to report on the entity’s compliance with laws and regulations, a representation may be appropriate acknowledging that management is responsible for the entity’s compliance with applicable laws and regulations and that the requirements have been met. For example, for audits under the Corporations Act 2001, the following paragraph could be added:
“The financial records of the [company, registered scheme or disclosing entity] have been kept so as to be sufficient to enable a financial report to be prepared and audited, and other records and registers required by the Corporations Act 2001 have been properly kept and are up-to-date”.
(f) Other Matters
Additional representations that may be appropriate in specific situations may include the following:
Justification for a change in accounting policy.
The work of a specialist has been used.
Arrangements for controlling the dissemination of the financial report and auditor’s report on the Internet.
Division Example Letter - ASA 580 - Management Representations - April 2006 - Example Letter | Zoe