Section EXAMPLE OF A MANAGEMENT REPRESENTATION L - ASRE 2410 - Review of an Interim Financial Report Performed by the Independent Auditor of the Entity - April 2006 - EXAMPLE OF A MANAGEMENT REPRESENTATION LETTER | Zoe
ASRE 2410 - Review of an Interim Financial Report Performed by the Independent Auditor of the Entity - April 2006
EXAMPLE OF A MANAGEMENT REPRESENTATION LEXAMPLE OF A MANAGEMENT REPRESENTATION LETTER
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The following letter is not intended to be a standard letter. It is to be used as a guide only and will need to be adapted according to individual requirements and circumstances. This illustrative letter is written in the context of a half-year financial report under the Corporations Act 2001.
Representations by management will vary from one entity to another and from one period to the next. Representation letters are ordinarily useful where evidence, other than that obtained by enquiry, may not be reasonably expected to be available or when management have made oral representations which the auditor wishes to confirm in writing.
[Entity Letterhead]
[Addressee – Auditor]
[Date]
This representation letter is provided in connection with your review of the half-year[13] financial report[14] of [name of entity] for the [period] ended [date], for the purpose of you expressing a conclusion as to whether you became aware of any matter in the course of the review that makes you believe that the half-year financial report is not in accordance with the Corporations Act 2001.
We acknowledge our responsibility for ensuring that the half-year financial report is in accordance with 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 half-year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.
We confirm that the half-year financial report is prepared and presented in accordance with the Corporations Act 2001 and is free of material misstatements, including omissions.
OR
[This representation letter is provided in connection with your review of the interim financial report[15] of [name of entity] for the [period] ended [date], for the purpose of you expressing a conclusion as to whether anything has come to your attention that causes you to believe that the interim financial report is not, in all material respects, presented fairly in accordance with [applicable financial reporting framework[16]].
We acknowledge our responsibility for ensuring that the interim financial report is in accordance with [applicable financial reporting framework].
We confirm that the interim financial report is prepared and presented fairly in accordance with [applicable financial reporting framework] and 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 review.
[Include representations required by this Auditing Standard (paragraph 55) and those 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 review; and
(b) minutes of all meetings of [shareholders, directors, committees of directors, Boards of Management].
We have disclosed to you the results of our assessment of the risk that the [interim financial report] may be materially misstated as a result of fraud.
There:
(a) has been no fraud or suspected fraud, error or non-compliance with laws and regulations involving management or employees who have a significant role in the internal control structure;
(b) has been no fraud or suspected 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 are responsible for, and have established and maintained, an adequate internal control structure to prevent and detect fraud and error and 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 recorded properly in the accounting records underlying the financial report.
We have no plans or intentions that may affect materially the carrying values, or classification, of assets and liabilities.
We have considered the requirements of Accounting Standard 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.
We believe the effects of uncorrected misstatements summarised in the accompanying schedule are immaterial, both individually and in the aggregate, to the interim [half-year] financial report taken as a whole.
The following have been recorded and/or disclosed properly in the interim [half-year] 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(s) 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 the effects of which should be considered for disclosure in the interim 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 that have not been disclosed 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 interim 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 interim 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 through to the date of this letter that would require adjustment to, or disclosure in, the [interim financial report].
We understand that your examination was made in accordance with Auditing Standard on Review Engagements ASRE 2410 and was, therefore, designed primarily for the purpose of expressing a conclusion on the interim financial report of [the entity], and that your 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 14 (above) 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 13 (above) 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[17] 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 applicable financial reporting framework in paragraphs 1 and 2 of the example management representation 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 may be addressed in the representation 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 may be reflected in an addition to Item 9 (above), 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 review, the auditor is required also 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 reviews under the Corporations Act 2001, the following paragraph may 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 reviewed, and other records and registers required by the Corporations Act 2001 have been kept properly 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 review report on the Internet.