management representation letter companies act 2013

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Detailed Format of a Management Representation Letter

Format of a management representation letter (mrl).

Chartered Accountants Dear Sirs, This representation letter is provided in connection with your audit of the financial statement of M/s. …….for the year ended 31st March 2020 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of M/s. …….as of 31st March 2020 and of the results of operations for the year then ended. We acknowledge our responsibility for the preparation of financial statements in accordance with the requirements of the other relevant statute and recognized accounting policies and practices, including the accounting standards issued by The Companies Act 2013/ The Institute of Chartered Accountants of India.

We confirm, to the best of our knowledge and belief, the following representations; General ___________________________ 1. Ours ‘…….is a limited company incorporated under the Companies Act, 1956/2013 bearing Regn. No CIN: ……………..dated …….. as Private Limited Company and converted into Public Limited Company on ………….. A copy of the Memorandum & Articles of Association is already with you. 2. Following persons are the members of the Board of Directors of the Company as on date:- Name of Director:- Designation;- Director Date of appointment Name of Director:- Designation; – Director Date of appointment Name of Director:- Designation; – Director Date of appointment Name of Director:- Designation;- Director Date of appointment Name of Director:- Designation;- Director Date of appointment 3. The Company has obtained all registrations/licenses required to run the business. 4. So far the Company had filed I.T. Return for the FY ending March …… No income tax return has been filed by the Company after the AY . PAN of the Company is ……. There are no demands/ appeals pending or details of appeals/demands pending are as under:- All the Statutory Compliance like VAT, Service Tax, GST, PF, ESIC, etc, has been paid timely and there is no default there, except the following:

5. We have maintained the following books of account:-

(a)Cash book (b) Bank Book (c) Ledger (d) Journal All the books have been kept on the computer and printouts are taken on a monthly/yearly basis as per needs. All the aforesaid books have been kept and maintained at the corporate office of the Company. 6. We enclose herewith a copy of final accounts for the year-ended ……… duly approved by the Board of Directors of the Company, for your perusal and doing the needful.

Related Topic: Private Company – Specimen Audit Report March 2020

7. Significant Accounting Policies

a) Basis of preparation The financial statements are prepared on an accrual basis under the historical cost convention, in accordance with the generally accepted accounting principles (Indian GAAP) to comply with the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year. b) Use of estimates The preparation of financial statements in conformity with the Indian GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognized in the periods in which the results are known/materialize. c) Revenue recognition Revenue is recognized on an “accrual” basis at the fair value of the consideration received or receivable net of applicable taxes, trade discounts, and customer returns. d) Secured Loans 1) The term loan from Financial Institutions i.e. ……….. are secured by the first charge ranking parri-passu in each case with the others by way of Equitable Mortgage by the deposit of the deeds in respect of the land situated ………………………. & by hypothecation of all the movable (save and except book debts) including immovable machinery, spares & accessories, Both present and future, subject to prior charge created in favour of the company’s banker on stock of raw material, semi-finished goods, finished goods & consumable stores and book debts for securing the cash credit for the working capital requirement. 2) All loans are guaranteed by all the promoters/shareholders of the company. e) Fixed assets Fixed assets are carried at cost less accumulated depreciation and impairment losses if any. The cost of fixed assets includes interest on borrowings attributable to the acquisition of qualifying fixed assets up to the date the asset is ready for its intended use and other incidental expenses incurred up to that date. f) Depreciation / amortization All the Company’s fixed assets including Intangible assets are depreciated on the basis of the Written Down method over the estimated useful life of the asset as per the provisions of the Companies Act, 2013. Leasehold improvements, Office Equipments, Furniture & Fixtures & Software are amortized over the useful life of the assets as specified under Company’s Act 2013. g) Foreign exchange transactions Transactions in foreign currency are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency prevailing on the date of the transaction. Monetary items denominated in foreign currency are restated at the rates prevailing on the balance sheet date. Non-monetary items denominated in foreign currency which are carried at historical cost are reported using the exchange rate at the date of the transaction. Exchange differences arising on the settlement of monetary items or on reporting company’s monetary items at rates different from those at which they were initially recorded during the year or reported in the previous financial statements are recognized as income or expense in the year in which they arise. h) Earnings per share Basic earnings/loss per share is calculated by dividing net profit/loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. i) Taxation Tax expense comprises current tax and deferred tax. Current tax is determined as the amount of tax payable in respect of taxable income for the year. The provision for current income-tax is recorded based on assessable income and the tax rate applicable to the relevant assessment year. Minimum Alternate Tax (MAT) credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in the guidance note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the profit and loss account and shown as MAT credit entitlement. The Company is carrying/carrying any business since …….. Income Tax Returns have been/not been filed from AY ……. There is no reasonable certainty of the realization of future profits based on the Profits & Loss Account of the earlier years. Therefore, no provision for Deferred Tax has been made under the prevailing circumstances. j) Investments: Long term investments are carried at cost after providing for any diminution in value if such diminution is of a permanent nature. Current investments are carried at lower of cost or market value. k) Loans & Advances Security deposits with of Rs. – will be adjusted by the …………… against the outstanding bill ………………………..hence not recoverable. l) Inventories: There are no inventories in the Balance Sheet. m) Borrowing Cost: Interest and other financing costs relating to borrowed funds attributable to the construction or acquisition of fixed assets have been capitalized to the extent if they relate to the period up to which the asset was ready to use (As per AS-16). All other borrowing costs are charged to revenue. n) Employee Benefits:

LEAVE ENCASHMENT

There are ………/s no employee. Accordingly, provisions have been made as per AS-15../hence this clause is not applicable. PROVIDENT FUND REgular in payment of dues/There is no employee hence this clause is not applicable. GRATUITY There are …… employees/is no employee hence this clause is not applicable. Provision made on the basis of actuarial valuation o) CONTINGENT LIABILITIES: A) Corporate Guarantees B)Capital Commitments .. The company has become a sick company within the meaning of clause (o) of sub-section 1 of section 3 of the sick industrial companies (special provision) act, 1985. The matter under consideration at BIFR/AIIFR for the revival process has been rejected by the Hon’ble BIFR. The interest of Rs…………. has not been provided on the term loans of …………..because OTS (ONE TIME SETTLEMENT) has been revoked due to nonpayment as per the OTS scheme. However, interest has been provided on the term loan of ……………… as per OTS Settlement and statement of account provided by the ……………….. B) The sales tax authorities have raised a demand of Rs ………………………The above demand is not acceptable and it has been challenged by the Company in Appeal. The appeal is pending before the authorities. Although the company has provided a liability of Rs. …………- in the books of accounts but from the prevailing circumstances the amount of Rs. ……………… appears to be a contingent liability.

8 NOTES ON ACCOUNTS

Micro and Medium Scale Business Entities: There are no Micro, Small, and Medium Enterprises, to whom the company owes dues which are outstanding for more than 45 days as at 31st March 2020. This information as required to be disclosed under the Micro, Small and Medium Development Act, 2006 has been determined to the extent such parties have been identified on the basis of information available with the Company. B The Company is a Small and Medium-Sized Company (SMC) as defined in the General Instructions in respect of Accounting Standard notified under the Companies Act, 2013, accordingly, the company has complied with the accounting standard as applicable to a Small and Medium-Sized Company. C In the absence of confirmation from the parties the debit & credit balances in respect of Security Deposits and have been taken as reflected in the books. Balance appearing under the heads Current Assets, Loans and Advances, and Current Liabilities are subject to confirmation. D In the opinion of the Board of Directors of the company, the current assets, loans, and advances have the value at least equal to the figures stated in the Balance Sheet on realization in the ordinary course of business and provision for all determinable/known liabilities have been made in the accounts when reliable estimates can be made of the amount of obligation. F Previous year Figures have been reworked, regrouped, re-arranged, and reclassified wherever considered necessary to make them comparable with current year’s figures. G There has been no default except Default of Principal repayment and interest repayment on Long Term Borrowings from ……………….. The figures have been quantified in the balance sheet.

i. There have been no irregularities involving management or employees who have a significant role in the system of internal control that could have a material effect on the financial statements. ii. The financial statements are free of material misstatements, including omissions. iii. We have complied with all the relevant provisions of the statute as applicable to us and our records and minutes in this respect are up to date and are open for inspection in the course of your audit. iv. The company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of noncompliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance. v. We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements. vi. All the loans or depositor repayment thereof was made by account payee Cheques or demand draft only. vii. In term of section 22 of the micro, Small & Medium Enterprises Development Act, 2006: Sundry Creditors of the Company: Rs.NIL Interest Paid to them: Rs. NIL viii. We have complied with tax provisions in respect of the deduction of TDS. ix. All the payments in the respect of any revenue item has been made in compliance with the provisions of section 40(A)(3) of the Income Tax Act 1961. x. Details of all immovable Properties Purchased/Sold during the years are as below: Details Purchase/Sale Amount Value as per stamp duty act NIL NA NA NA

10. General Affirmations

· The Cash balance as on 31/03/2020 has been physically verified by the management at Rs. · The company has not given any guarantee for loans taken by others from banks or financial institutions. · We confirm that no short-term funds have been employed for long-term purposes. · We confirm that during the year company has not issued any shares. · We confirm that during the year company has not issued any debentures to any person. · We confirm that during the year company has not raised funds from the public issue of shares. · None of the employees of the Company were in receipt of remuneration in excess of the limits specified under various provisions of the Companies Act, 2013. · We confirm that Company has duly complied all the provisions of Section 40(A)3 of the I.T. Act, 1961, read with Rule 6DD, and has not made any payment of expenditure in excess of Rs……./- in Cash. · We confirm that Company has duly complied all the provisions of Section 269SS and 269T of the I.T. Act, 1961 and has not taken/accepted and or repaid any loans or deposits in excess of limits prescribed under these sections otherwise them through account payee Cheques and or draft as the case may be. · No personal expenses have been charged to revenue accounts. · No fraud has been committed during the year.

11. Other Information of the company:

Email id: :- Principal Contact No :- No. Of Employees: :- persons No. of Branches:- NIL 12. Others: (a) Our Books of Accounts and Other Records are kept at the corporate address of the company. (b) A bonus amounting Rs. NIL /- was paid to employees which is of customary nature. For and on behalf of the Board ……. Place: New Delhi

A chartered Accountant and a Law Graduate having more than 30 years of experience. Founder of Tri Nagar Keshav Puram CPE Study Circle of NIRC of ICAI. Have organized learning sessions covering the Syllabus for Limited Insolvency Examination in different cities and forums in Northern India.

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• Company Law

Statutory Audit Manual 2021-22 under Companies Act, 2013

Articles contains Updated CARO New Format, Schedule III New Requirements, Board Reports Format, Management Representation Letter, AS requirements for Corporates / Non-Corporates, Audit Program, Audit Report Format etc.

AUDIT MANUAL SMALL & MEDIUM ENTERPRISES (Contains Format of CARO 2020, Additional Requirements of Schedule III) 2021-2022 (updated till 27.06.2022)

INDEX OF CONTENTS

PAGE PARTICULARS

4 KEY CHANGES

5-8 APPLICABILITY OF ACCOUNTING STANDARDS TO COMPANIES (changes w.e.f. 23.06.2021 )

9-13 APPLICABILITY OF ACCOUNTING STANDARDS TO NON-CORPORATES ENTITIES ( w.e.f. 01.02.2022 )

14-18 FORMAT OF AUDIT PROGRAM

19 AUDIT WORKING PAPERS – CURRENT FILE

20 AUDIT WORKING PAPERS – PERMANENT FILE

21 FORMAT OF ENGAGEMENT LETTER (NON-CORPORATE)

22 FORMAT OF CONSENT & CERTIFICATE OF AUDITOR UNDER COMPANIES ACT, 2013

23 FORMAT OF APPOINTMENT LETTER (CORPORATE) TO AUDITOR – RATIFICATION AT AGM

24 FORMAT OF APPOINTMENT LETTER (CORPORATE) TO AUDITOR – NEW APPOINTMENT

25 FORMAT OF APPOINTMENT LETTER (TAX AUDIT U/S 44AB) TO AUDITOR

26 FORMAT OF COMMUNICATION TO PREVIOUS AUDITOR

27-31 FORMAT OF AUDIT REPORT (NEW W.E.F. 01.04.2018)

32-33 FORMAT OF AUDIT REPORT – NON- CORPORATE ENTITY (NEW W.E.F. 01.04.2018)

Prepared in Accordance with a Fair Presentation Framework

34-35 FORMAT OF AUDIT REPORT – NON- CORPORATE ENTITY (NEW W.E.F. 01.04.2018)

Prepared in Accordance with a General Purpose Compliance Framework

36-39 CARO 2020 (UNQUALIFIED STANDARD VERSION – NEW W.E.F. 01.04.2021 )

44-52 CHANGES IN SCHEDULE III (W.E.F. 01.04.2021 )

53-54 FORMAT OF REPORT ON INTERNAL FINANCIAL CONTROLS

55-60 FORMAT OF MANAGEMENT REPRESENTATION LETTER TO AUDITOR

61-63 FORMAT OF BOARD’S REPORT – STANDARD VERSION

64-65 FORMAT OF BOARD’S REPORT – SMALL COMPANY AND OPC W.E.F. 31.07.2018

KEY CHANGES

• New Format of CARO 2020 (applicablee.f. 01.04.2021)
• Major Changes in Schedule III (w.e.f. 01.04.2021)
• Quoting UDIN (ICAI) is made mandatory
• For all Certificates w.e.f. 1st February, 2019.
• For all GST and Tax Audit Reports w.e.f. 1st April, 2019.
• For all other Audit, Assurance and Attestation functions w.e.f. 1st July, 2019.
• Tax Audit Form 3CD is changed with effect from 20.08.2018

[Except clause 30C (GAAR) and clause 44 (GST)- they are deferred upto 31.03.2022 ]

• Board Report for Small Company and One Person Company simplified and prescribed in abridged format with effect from 31.07.2018
• Requirement of MGT-9 (extract of Annual Return) as part of Board’s Report is done away by the Companies (Amendment) Act, 2017 w.e.f. 31.07.2018
• Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 are not applicable to a private company w.e.f. 13.06.2017:-
• which is a one person company or a small company; or
• which has turnover less than rupees fifty crores as per latest audited financial statement and which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than rupees twenty five crore
• Ratification by members in Annual General Meeting in respect of re­appointment of Auditors no more required w.e.f. 07.05.2018
• Few Annual/Half yearly compliance requirements by MCA:

APPLICABILITY OF ACCOUNTING STANDARDS TO COMPANIES (as amended w.e.f. 23.06.2021)

SMCs: Criteria for classification of companies under the Companies (Accounting Standards) Rules, 2006. Small and Medium-Sized Company (SMC) as defined in Clause 2(f) of the Companies (Accounting Standards) Rules, 2006 means, a company-

(i) Whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India;

(ii) Which is not a bank, financial institution or an insurance company;

(iii) Whose turnover (excluding other income) does not exceed rupees fifty crore in the immediately preceding accounting year;

iv) Which does not have borrowings (including public deposits) in excess of rupees fifty crore at any time during the immediately preceding accounting year; and

v) Which is not a holding or subsidiary company of a company which is not a small and medium sized company.

Explanation: For the purposes of clause 2(f), a company shall qualify as a Small and Medium Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant accounting period.

Non-SMCs: Companies not falling within the definition of SMC are considered as Non- SMCs.

A. General Instructions

. SMCs shall follow the following instructions while complying with Accounting Standards under these Rules:-

1.1 the SMC which does not disclose certain information pursuant to the exemptions or relaxations given to it shall disclose (by way of a note to its financial statements) the fact that it is an SMC and has complied with the Accounting Standards insofar as they are applicable to an SMC on the following lines: “The Company is a Small and Medium Sized Company (SMC) as defined in the Companies (Accounting Standards) Rules, 2021 notified under the Companies Act, 2013 . Accordingly, the Company has complied with the Accounting Standards as applicable to a Small and Medium Sized Company.”

1.2 Where a company, being an SMC, has qualified for any exemption or relaxation previously but no longer qualifies for the relevant exemption or relaxation in the current accounting period, the relevant standards or requirements become applicable from the current period and the figures for the corresponding period of the previous accounting period need not be revised merely by reason of its having ceased to be an SMC. The fact that the company was an SMC in the previous period and it had availed of the exemptions or relaxations available to SMCs shall be disclosed in the notes to the financial statements. 1.3 If an SMC opts not to avail of the exemptions or relaxations available to an SMC in respect of any but not all of the Accounting Standards, it shall disclose the standard(s) in respect of which it has availed the exemption or relaxation.

1.4 If an SMC desires to disclose the information not required to be disclosed pursuant to the exemptions or relaxations available to the SMCs, it shall disclose that information in compliance with the relevant accounting standard.

1.5 The SMC may opt for availing certain exemptions or relaxations from compliance with the requirements prescribed in an Accounting Standard: Provided that such a partial exemption or relaxation and disclosure shall not be permitted to mislead any person or public.

Other Instructions

Rule 5 of the Companies (Accounting Standards) Rules, 2021, provides as below: “5. Qualification for exemption or relaxation in respect of SMC. – An existing company, which was previously not a Small and Medium Sized Company (SMC) and subsequently becomes a SMC, shall not be qualified for exemption or relaxation in respect of Accounting Standards available to a SMC until the company remains a SMC for two consecutive accounting periods.”

Cash Flow Statement is required to be included as a part of financial statements of a company except in case of One Person Company, small company and dormant company.

1. A S 15 : Employee Benefits

a) paragraphs 11 to 16 of the standard to the extent they deal with recognition and measurement of short-term accumulating compensated absences which are non-vesting (i.e., short-term accumulating compensated absences in respect of which employees are not entitled to cash payment for unused entitlement on leaving);

(b) paragraphs 46 and 139 of the Standard which deal with discounting of amounts that fall due more than 12 months after the balance sheet date;

(c) recognition and measurement principles laid down in paragraphs 50 to 116 and presentation and disclosure requirements laid down in paragraphs 117 to 123 of the Standard in respect of accounting for defined benefit plans. However, such companies should actuarially determine and provide for the accrued liability in respect of defined benefit plans by using the Projected Unit Credit Method and the discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78 of the Standard. Such companies should disclose actuarial assumptions as per paragraph 120(l) of the Standard; and recognition and measurement principles laid down in paragraphs 129 to 131 of the Standard in respect of accounting for other longterm employee benefits. However, such companies should actuarially determine and provide for the accrued liability in respect of other long-term employee benefits by using the Projected Unit Credit Method and the discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78 of the Standard.

A S 19 Leases:

Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a) and (f); and 46 (b) and (d) relating to disclosures are not applicable to SMCs.

AS 20 Earnings Per Share: Disclosure of diluted earnings per share (both including and excluding extraordinary items) is exempted for SMCs.

AS 25 Interim Financial Reporting: Interim Financial Reporting, does not require a company to present interim financial report. It is applicable only if a company is required or elects to prepare and present an interim financial report. Only certain Non-SMCs are required by the concerned regulators to present interim financial results, e.g., quarterly financial results required by the SEBI. Therefore, the recognition and measurement requirements contained in this Standard are applicable to those Non-SMCs for preparation of interim financial results.

AS 28 Impairment of Assets: SMCs are allowed to measure the ‘value in use’ on the basis of reasonable estimate thereof instead of computing the value in use by present value technique. Consequently, if an SMC chooses to measure the ‘value in use’ by not using the present value technique, the relevant provisions of AS 28, such as discount rate etc., would not be applicable to such an SMC. Further, such an SMC need not disclose the information required by paragraph 121(g) of the Standard.

AS 29 Provisions, Contingent Liabilities and Contingent Assets:

Paragraphs 66 and 67 relating to disclosures are not applicable to SMCs.

APPLICABILITY OF ACCOUNTING STANDARDS TO NON-CORPORATE ENTITIES as amended w.e.f. 01.02.2022)

For more information check: https://www.icai.org/post.html?post_id=15769

Level I Entities

Non-corporate entities which fall in any one or more of the following categories, at the end of the relevant accounting period, are classified as Level I entities:

i. Entities whose equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India.

ii. Banks (including co-operative banks), financial institutions or entities carrying on insurance business.

iii. All entities engaged in commercial, industrial and business activities, whose turnover (excluding other income) exceeds rupees two-fifty crore in the immediately preceding accounting year.

iv. All entities engaged in commercial, industrial and business activities having borrowings (including public deposits) in excess of rupees fifty crore at any time during the immediately preceding accounting year.

v. Holding and subsidiary entities of any one of the above.

Level II Entities

Non-corporate entities which are not Level I entities but fall in any one or more of the following categories are classified as Level II entities:

i. All entities engaged in commercial, industrial and business activities, whose turnover (excluding other income) exceeds rupees fifty crore but does not exceed rupees two-fifty crore in the immediately preceding accounting year.

ii. All entities engaged in commercial, industrial and business activities having borrowings (including public deposits) in excess of rupees ten crore but not in excess of rupees fifty crore at any time during the immediately preceding accounting year.

i. Holding and subsidiary entities of any one of the above.

Level III Entities

Non-corporate entities which are not covered under Level II and Level III, but fall in any one or more of the following categories are classified as Level III entities:

i. All entities engaged in commercial, industrial and business activities, whose turnover (excluding other income) exceeds rupees ten crore but does not exceed rupees fifty crore in the immediately preceding accounting year.

ii. All entities engaged in commercial, industrial and business activities having borrowings (including public deposits) in excess of rupees two crore but not in excess of rupees ten crore at any time during the immediately preceding accounting year.

Level IV Entities

Non-corporate entities, which are not covered under Level I and Level II, are considered as Level IV entities.

Additional requirements

(1) An MSME which avails the exemptions or relaxations given to it shall disclose (by way of a note to its financial statements) the fact that it is an MSME, the Level of MSME and that it has complied with the Accounting Standards insofar as they are applicable to entities falling in Level II or Level III or Level IV, as the case may be.

(2) Where an entity, being covered in Level II or Level III or Level IV, had qualified for any exemption or relaxation previously but no longer qualifies for the relevant exemption or relaxation in the current accounting period, the relevant standards or requirements become applicable from the current period and the figures for the corresponding period of the previous accounting period need not be revised merely by reason of its having ceased to be covered in Level II or Level III or Level IV, as the case may be. The fact that the entity was covered in Level II or Level III or Level IV, as the casemay be, in the previous period and it had availed of the exemptions or relaxations available to that Level of entities shall be disclosed in the notes to the financial statements. The fact that previous period figures have not been revised shall also be disclosed in the notes to the financial statements.

(3) Where an entity has been covered in Level I and subsequently, ceases to be so covered and gets covered in Level II or Level III or Level IV, the entity will not qualify for exemption/relaxation available to that Level, until the entity ceases to be covered in Level I for two consecutive years. Similar is the case in respect of an entity, which has been covered in Level II or Level III and subsequently, gets covered under Level III or Level IV.

(4) If an entity covered in Level II or Level III or Level IV opts not to avail of the exemptions or relaxations available to that Level of entities in respect of any but not all of the Accounting Standards, it shall disclose the Standard(s) in respect of which it has availed the exemption or relaxation.

(5) If an entity covered in Level II or Level III or Level IV opts not to avail any one or more of the exemptions or relaxations available to that Level of entities, it shall comply with the relevant requirements of the Accounting Standard.

(6) An entity covered in Level II or Level III or Level IV may opt for availing certain exemptions or relaxations from compliance with the requirements prescribed in an Accounting Standard: Provided that such a partial exemption or relaxation and disclosure shall not be permitted to mislead any person or public.

(7) In respect of Accounting Standard (AS) 15, Employee Benefits, exemptions/ relaxations are available to Level II and Level III entities, under two sub-classifications, viz., (i) entities whose average number of persons employed during the year is 50 or more, and (ii) entities whose average number of persons employed during the year is less than 50. The requirements stated in paragraphs (1) to (6) above, mutatis mutandis, apply to these sub-classifications.

1. A S 15 Employee Benefits (revised 2005)

(1) Level II and Level III Non-company entities whose average number of persons employed during the year is 50 or more are exempted from the applicability of the following paragraphs:

(a) paragraphs 11 to 16 of the standard to the extent they deal with recognition and measurement of shortterm accumulating compensated absences which are non-vesting (i.e., short-term accumulating compensated absences in respect of which employees are not entitled to cash payment for unused entitlement on leaving);

(c) recognition and measurement principles laid down in paragraphs 50 to 116 and presentation and disclosure requirements laid down in paragraphs 117 to 123 of the Standard in respect of accounting for defined benefit plans. However, such entities should actuarially determine and provide for the accrued liability in respect of defined benefit plans by using the Projected Unit Credit Method and the discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78 of the Standard. Such entities should disclose actuarial assumptions as per paragraph 120(l) of the Standard; and

(d) recognition and measurement principles laid down in paragraphs 129 to 131 of the Standard in respect of accounting for other long-term employee benefits. However, such entities should actuarially determine and provide for the accrued liability in respect of other long-term employee benefits by using the Projected Unit Credit Method and the discount rate used should be determined by reference to market yields at the balance sheet date on government bonds as per paragraph 78 of the Standard.

(2) Level II and Level III Non-company entities whose average number of persons employed during the year is less than 50 and Level IV Non-company entities irrespective of number of employees are exempted from the applicability of the following paragraphs:

(c) recognition and measurement principles laid down in paragraphs 50 to 116 and presentation and disclosure requirements laid down in paragraphs 117 to 123 of the Standard in respect of accounting for defined benefit plans. However, such entities may calculate and account for the accrued liability under the defined benefit plans by reference to some other rational method, e.g., a method based on the assumption that such benefits are payable to all employees at the end of the accounting year; and

(d) recognition and measurement principles laid down in paragraphs 129 to 131 of the Standard in respect of accounting for other long-term employee benefits. Such entities may calculate and account for the accrued liability under the other long-term employee benefits by reference to some other rational method, e.g., a method based on the assumption that such benefits are payable to all employees at the end of the accounting year.

2. A S 19 Leases:

(a) Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a) and (f); and 46 (b) and (d) relating to disclosures are not applicable to Level II Non-company entities.

(b) Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a), (f) and (g); and 46 (b), (d) and (e) relating to disclosures are not applicable to Level III Non-company entities.

(c) Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a), (f) and (g); 38; and 46 (b), (d) and (e) relating to disclosures are not applicable to Level IV Non-company entities.

3. A S 22 Accounting for Taxes on Income

(a) Level IV Non-company entities shall apply the requirements of AS 22, Accounting for Taxes on Income, for Current tax defined in paragraph 4.4 of AS 22, with recognition as per paragraph 9, measurement as per paragraph 20 of AS 22, and presentation and disclosure as per paragraphs 27-28 of AS 22.

(b) Transitional requirements On the first occasion when a Non-company entity gets classified as Level IV entity, the accumulated deferred tax asset/liability appearing in the financial statements of immediate previous accounting period, shall be adjusted against the opening revenue reserves.

4. A S 26 Intangible Assets

Paragraphs 90(d)(iii); 90(d)(iv) and 98 relating to disclosures are not applicable to Level IV Non-company entities.

5. A S 28 Impairment of Assets:

Level II and Level III Non-company entities are allowed to measure the ‘value in use’ on the basis of reasonable estimate thereof instead of computing the value in use by present value technique. Consequently, if Level II or Level III Non-company entity chooses to measure the ‘value in use’ by not using the present value technique, the relevant provisions of AS 28, such as discount rate etc., would not be applicable to such an entity. Further, such an entity need not disclose the information required by paragraph 121(g) of the Standard.

(a) Also, paragraphs 121(c)(ii); 121(d)(i); 121(d)(ii) and 123 relating to disclosures are not applicable to Level III Noncompany entities.

6. A S 29 Provisions, Contingent Liabilities and Contingent Assets:

Disclosures in respect of the following provisions are not applicable to Level II, III and Level IV entities (A) For each class of provision:

• the carrying amount at the beginning and end of the period;
• additional provisions made in the period, including increases to existing provisions;
• amounts used (i.e. incurred and charged against the provision) during the period; and
• unused amounts reversed during the period.

(B) For each class of provision:

• a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits;
• an indication of the uncertainties about those outflows. Where necessary to provide adequate information, an enterprise should disclose the major assumptions made concerning future events, i.e. Future events that may affect the amount required to settle an obligation should be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.
• the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement.

7. In case of Level IV Non-company entities, generally there are no such transactions that are covered under AS 14

Accounting for Amalgamations, or jointly controlled operations or jointly controlled assets covered under AS 27, Financial Reporting of Interests in Joint Ventures. Therefore, these standards are not applicable to Level IV Non-company entities. However, if there are any such transactions, these entities shall apply the requirements of the relevant standard.

8. AS 21, Consolidated Financial Statements, AS 23, Accounting for Investments in Associates in Consolidated

Financial Statements, AS 27, Financial Reporting of Interests in Joint Ventures (to the extent of requirements relating to Consolidated Financial Statements), and AS 25, Interim Financial Reporting, do not require a Non-company entity to present consolidated financial statements and interim financial report, respectively. Relevant AS is applicable only if a Non-company entity is required or elects to prepare and present consolidated financial statements or interim financial report.

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What is a Management Representation Letter?

Getting through financial audits can be frustrating for companies, especially when asked to provide management representation letters.

This article will clarify exactly what a management representation letter is, why auditors request them, what should be included, and provide examples to make the process smooth and compliant.

You'll learn the purpose of these letters, see template examples, understand international audit standards, and gain key takeaways to improve financial reporting at your organization.

Introduction to Management Representation Letters

A management representation letter is a formal document signed by a company's senior management that is provided to external auditors. It contains certain written representations that auditors require in order to complete an audit and form an opinion on the company's financial statements.

Defining the Management Representation Letter in Audit Context

The management representation letter serves an important role within the financial statement audit process. Auditors use it as audit evidence to support their assessment of whether the financial statements are free of material misstatement. Specifically, auditors request written confirmation from management regarding the accuracy and completeness of information provided during the audit. This includes representations related to:

• The financial statements and adequacy of disclosures
• Proper recording of transactions and account balances
• Internal controls over financial reporting
• Compliance with laws and regulations

By obtaining these written representations from management, auditors gain additional audit evidence to complete their testing and analysis. The management representation letter also outlines management's responsibilities under the audit engagement.

Essential Components of a Management Representation Letter

A standard management representation letter contains certain key statements that auditors rely upon. These include:

• Financial statement disclosures : Confirmation that management has provided the auditors with all relevant information and access needed to perform the audit.
• Recognition, measurement and disclosure : Assertion that the financial statements comply with the applicable financial reporting framework and standards.
• Non-compliance : Disclosure of any non-compliance with laws and regulations.
• Litigation and claims : Details of any actual, pending or threatened litigation and claims that could impact the financial statements.

The letter will also typically list areas of significant estimates and judgments made by management in preparing the financial statements. For example, allowances for doubtful accounts, asset impairment assessments, and assumptions used in valuation models.

By obtaining written representation on these matters, auditors gain evidence to issue their audit opinion. The management representation letter should be signed by the CEO and CFO or equivalent members of senior management.

Legal and Ethical Implications of Management Representations

Signing a management representation letter has legal and ethical implications. Management must ensure representations made to the auditors are accurate and made in good faith. Intentionally misrepresenting information or omitting relevant details could constitute fraud and result in legal liability.

Auditors also have a duty to assess the reasonableness of management representations and corroborate them with other audit evidence. Relying solely on management representations without further verification could call into question the quality of the audit.

Overall, the management representation letter facilitates open and transparent communication between management and auditors. It serves as a legally binding confirmation of management's fulfillment of its financial reporting responsibilities.

What is the main purpose of a management representation letter?

The main purpose of a management representation letter is to obtain written confirmation from management that they have fulfilled their responsibility for the fair presentation of the financial statements. This letter documents that management has provided the auditors with all relevant information and access needed to conduct the audit.

Some key purposes of the management representation letter include:

Confirming management's responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework (e.g. GAAP or IFRS).

Affirming that management has provided the auditors with all relevant information and access to records, documentation and personnel that is necessary for the audit.

Disclosing any instances of fraud involving management, employees with significant internal control roles, or those that cause a material misstatement of the financial statements.

Presenting details on matters that impact the financial statements - such as plans or intentions that may affect asset/liability carrying values, information about related parties, contingencies, subsequent events, etc.

Stating that all transactions have been recorded and are reflected in the financial statements. This helps confirm completeness and cut-off assertions.

So in summary, the management representation letter serves as important audit evidence that validates information provided by management to the auditors. It also formally documents management's responsibilities and representations concerning the financial statements.

What is the meaning of management representation?

Management representation refers to written confirmation provided by management of an entity to the auditors regarding the accuracy and completeness of financial statements and adequacy of internal controls.

The management representation letter is a key audit evidence prepared at the completion of the audit process. It contains management's assertions regarding:

• Fair presentation of financial statements
• Completeness of information provided to auditors
• Proper accounting policies used
• Reasonableness of significant estimates made

Essentially, through this letter, management takes responsibility for the fair presentation of the financial statements. They confirm to the auditors that they have fulfilled their financial reporting responsibilities.

The management representation letter covers all periods encompassed by the audit report and is dated the same date as the completion of audit fieldwork. It is addressed to the engagement partner and signed by those with appropriate responsibilities for the financial statements, usually the Chief Executive Officer and Chief Financial Officer.

By obtaining written representations from management, the auditors demonstrate they have obtained sufficient appropriate audit evidence to support their audit opinion. The representations serve as necessary supplementary corroboration of management's oral assertions made during the audit.

In summary, the management representation letter is a written statement from management provided to the auditors as part of the audit evidence. It confirms management's compliance with financial reporting responsibilities to enable auditors to form their audit opinion.

What is an example of a management representation letter?

We are providing this letter in connection with your audit of the cost representation statement of USAID resources managed by (Client Name) under Contract No. XXX “Project Name” for the period MM/DD/YY to MM/DD/YY.

We confirm, to the best of our knowledge and belief, the following representations made to you during your audit:

• We have made available to you all financial records and related data, including service auditor reports.
• There have been no communications from regulatory agencies concerning noncompliance with or deficiencies on financial reporting practices.
• We have no knowledge of any known or suspected fraudulent financial reporting or misappropriation of assets involving management or employees with significant roles in internal control.
• We have disclosed to you the results of our assessment of risk that the cost representation statement may be materially misstated as a result of fraud.
• There are no material transactions that have not been properly recorded in the accounting records.
• We believe the effects of any uncorrected financial statement misstatements aggregated by you are immaterial.
• We have disclosed all liabilities, both actual and contingent.
• There are no violations or possible violations of laws or regulations whose effects should be considered.

We confirm that the representations we have made to you during your audit are complete, truthful, and accurate.

Sincerely, [Signature] [Client Representative Name and Title]

What is the difference between management letter and management representation letter?

The key differences between a management letter and a management representation letter in an audit are:

Focus : The management letter focuses on identifying weaknesses and areas of improvement in the company's financial reporting process and internal controls. Management representation, on the other hand, focuses on providing evidence of management's understanding and support of the audit process.

Purpose : The purpose of a management letter is to communicate deficiencies in internal control and make suggestions for improvements. The purpose of a management representation letter is to confirm certain information that the auditors have requested from management.

Content : A management letter contains comments and recommendations from the auditor about issues encountered during the audit. A management representation letter contains specific statements by management regarding matters such as the fairness of financial statements.

Timing : A management letter is typically issued after the audit report while a management representation letter is obtained during the audit.

In summary, while both letters relate to the audit process, the management letter aims to provide suggestions for improvement while the management representation letter serves as audit evidence regarding management's assertions. The management representation letter supports the audit by confirming the accuracy of the financial statements.

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The purpose and importance of management representation letters.

Management representation letters serve several key purposes in the audit process. Most importantly, they provide additional audit evidence to support the auditor's opinion on the financial statements.

Reinforcing the Auditor's Collection of Audit Evidences

Management representation letters reinforce the audit evidence the auditor has already obtained throughout the audit. As outlined in ISA 500 Audit Evidence, auditors must obtain sufficient appropriate evidence to support their opinion. The letter serves as written representation from management on important assertions related to the financial statements. This includes the completeness and accuracy of information provided to the auditor.

Management's Accountability for Financial Reporting

Additionally, the letter highlights management's responsibilities over financial reporting. Management, not the auditor, is responsible for the preparation and fair presentation of the financial statements. The representation letter formally documents that management has fulfilled these duties, a key assertion needed to issue an audit opinion.

Assurance on Contingent and Off-Balance-Sheet Liabilities

Auditors also rely on management's representations on significant estimates and disclosures. This includes assurance from management that the financial statements appropriately reflect contingent liabilities and off-balance-sheet liabilities in accordance with the applicable financial reporting framework.

In summary, representation letters serve as a final confirmation from management that they have fulfilled their financial reporting responsibilities. The letters provide key audit evidence and accountability to support the auditor's work in accordance with auditing standards.

Drafting a Management Representation Letter: Best Practices

A management representation letter is an important part of the audit process. It documents certain written representations made by management to the auditors regarding the company's financial statements.

Drafting an effective management representation letter requires following several best practices:

Management Representation Letter Template: A Starting Point

When creating a management representation letter, it's best to start with a template. This ensures all relevant topics are covered such as:

• Management's responsibility for the preparation and fair presentation of the financial statements
• Availability of all financial records and related data
• Completeness of information provided regarding transactions and events
• Disclosure of all liabilities, both actual and contingent
• Non-existence of any fraud or illegal acts

Tailor the template to the specific circumstances and transactions of the business. But the template establishes a solid foundation.

Who Should Sign the Management Representation Letter

Typically the management representation letter should be signed by:

• The CEO or Managing Director
• The CFO or Financial Controller

This demonstrates the company's overall governance has reviewed the representations and attests to their validity and completeness.

In some cases, representation from heads of divisions or departments may also be necessary regarding transactions or activities under their specific purview.

Customizing Representations to Reflect Unique Organizational Circumstances

While a template is useful, each management representation letter must be customized to reflect the distinct transactions and activities of the organization. Specifically call out areas the auditors have highlighted as potential risks or requiring further representations.

For example, if the company underwent a major acquisition, restructuring, or system implementation, representations would be needed to address the associated impacts and risks regarding financial reporting.

The management representation letter is not a mere formality. It serves as an indispensable record of the critical dialogue between management and auditors. Following these best practices helps craft letters that clearly communicate important representations.

Management Representation Letter Samples and Examples

Management representation letters are important documents in the financial audit process. They contain written confirmation from management about the accuracy and completeness of financial statements and disclosures. Reviewing examples can help companies understand what to include in their own letters.

Analyzing a Management Representation Letter Sample

Here is an excerpt from a sample management representation letter:

We acknowledge our responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). We have provided you with unrestricted access to persons within the Company...

This excerpt demonstrates several key elements:

• Acknowledgment of management's responsibility for financial statements conforming to GAAP
• Confirmation that auditors had full access to people and information

Other standard inclusions are statements around contingent liabilities, litigation matters, plans or intentions that may affect assets or liabilities, and confirmation that appropriate disclosures have been made.

Analyzing examples helps identify customary terms to include.

Management Representation Letter PDF: Accessibility and Format

Management representation letters are often provided to auditors as PDF files. This locked, uneditable format:

• Facilitates easy sharing of the definitive final version
• Allows clear version control with digital signatures
• Enables reliable long-term archival storage

PDF format removes ambiguity around which representation letter version was relied upon.

Real-World Examples: Complex Issues

Consider these excerpts from real-world representation letters:

"The restructuring provision of $20 million represents our best estimate of costs to complete the plant closure based on current plans..."

"We confirm that we have properly recorded and disclosed the acquisition of Company XYZ in the financial statements..."

These excerpts demonstrate how companies transparently address complex real situations like restructurings or major transactions in the representation letter.

Real examples provide assurance that the company has appropriately considered complex accounting matters.

Comparing Management Letters and Management Representation Letters

Management letters and management representation letters serve important but distinct purposes in the audit process.

Management Letter vs Management Representation Letter: Clarifying the Distinction

A management letter communicates deficiencies or recommendations for improvement identified by the auditor during the audit. These may relate to internal controls, processes, or compliance issues that could be made more effective.

In contrast, a management representation letter obtained near the end of an audit contains specific written representations from management about the accuracy and completeness of the financial statements and disclosures. Common representations confirm that:

• Financial statements are fairly presented
• Significant assumptions used by management are reasonable
• All relevant information has been provided to the auditor
• There are no undisclosed side agreements or contingencies

While management letters offer suggestions, representation letters confirm critical facts underlying the audit.

The Role of the Auditor in Relation to Management Representations

Auditors use both tools to fulfill their responsibilities:

Management letters reflect the auditor's duty to communicate control deficiencies to those charged with governance. This allows the entity to take timely remedial action.

Representation letters provide audit evidence as part of the auditor's risk assessment procedures under auditing standards. They represent a form of documentary evidence about management's intents, knowledge and accuracy of the financial statements.

If management were unwilling to sign the representation letter, the auditor would need to reconsider their audit opinion.

Impact on Audit Opinions and Auditor's Reports

The management letter has no direct bearing on the auditor's opinion, unless the issues it raises cast doubt on the fairness of the financial statements.

However, matters raised in the representation letter directly relate to the audit evidence obtained. If management refuses to sign the letter, the auditor would likely issue a qualified opinion or disclaimer of opinion on the financial statements due to the limitation on audit scope and evidence.

In summary, while management letters offer helpful recommendations, representation letters provide the auditor written confirmation of critical information pertinent to the audit itself. Both play key roles in the audit process.

International Standards on Auditing: ISA 580 Management Representations

The International Standards on Auditing (ISA) provide a framework for conducting high quality external audits. ISA 580 specifically focuses on obtaining appropriate written representations from management to support the audit evidence gathered.

Understanding ISA 580 and Its Relevance to Management Representation Letters

ISA 580 outlines the auditor's responsibilities for obtaining written representations from management to confirm certain matters or to support other audit evidence. Some key points:

• Requires auditors to obtain written representations from management that they have fulfilled their financial reporting responsibilities
• Covers areas like recognition, measurement, presentation, and disclosure of information as per the financial reporting framework
• Helps auditors obtain confirmation on matters material to the financial statements, like the completeness of information provided
• Allows for detection of material misstatements due to fraud

By adhering to ISA 580, auditors can ensure management representation letters align with the necessary audit evidence requirements.

Compliance with International Standards on Auditing

It is critical that management representation letters comply with ISA guidelines, including:

• Obtaining representations from appropriate individuals : Those with overall responsibility for financial reporting, such as the CEO and CFO
• Written format : Printed on the organization's letterhead and signed by hand
• Date : No earlier than the date of the audit report
• Wording : Clear acknowledgement of responsibilities, accuracy of information provided, etc.

Strict compliance ensures the representations constitute valid and appropriate audit evidence as per ISA 500.

Case Studies: Adherence to ISA 580 in Practice

Company A - Drafted a management representation letter that was vague, unsigned, and outdated. By not adhering to ISA 580, they had to invest additional time and resources to obtain proper representations.

Company B - Carefully followed ISA 580 requirements. The CFO and CEO signed off on a letter confirming completeness of information and awareness of responsibilities. This aligned smoothly with the audit process.

As exemplified, non-compliance ultimately wastes time and resources. Whereas alignment with ISA 580 standards helps streamline external audits.

Conclusion and Key Takeaways

Management representation letters are important, standard audit evidence that reduce risk. They signify management's representations concerning the financial statements and accountability for internal controls, fraud, and information provided to auditors.

Summarizing the Role of Management Representation Letters in Audits

Management representation letters summarize key information and representations from management to auditors. They serve several key functions:

• Confirm management's responsibility for the preparation and fair presentation of the financial statements
• Disclose any issues or deficiencies in internal controls
• Affirm that all relevant information has been provided to auditors
• Highlight any fraud, illegal acts, or noncompliance with laws and regulations

By obtaining these written representations, auditors reduce engagement risk and confirm their understanding of management's views and positions.

Final Thoughts on Best Practices and Compliance

It is critical that management representation letters adhere to regulations and professional standards. Key best practices include:

• Ensuring the letter is dated as of the date of the auditor's report
• Having the letter signed by those with appropriate responsibilities and authority
• Disclosing all relevant issues completely and accurately
• Following the guidelines and requirements outlined in ISA 580 and other applicable standards

Diligent compliance promotes accuracy, transparency, and accountability.

Encouraging Diligence and Transparency in Financial Reporting

At their core, management representation letters aim to foster diligent, truthful, and transparent financial reporting. By eliciting key written representations from management, auditors promote an environment of responsibility, compliance, and ethical practice. This ultimately supports the accuracy and reliability of financial statements for all stakeholders.

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Applicability of Form MGT - 8 under Companies Act, 2013

• What is Form MGT-8 under the Companies Act, 2013?
• Under Which Section Form MGT-8 is issued?
• What are the criteria for the applicability of Form MGT-8?
• What is the purpose of Form MGT-8?
• When MGT-8 is issued and what should be the date of signing?
• Is MGT-8 applicable to private limited companies?
• Is MGT-8 applicable to Nidhi companies?
• Is the generation of UDIN mandatory for Form MGT-8?
• How to file Form MGT-8?
• What are the penalties for wrong reporting of information in Form MGT-8 or non-compliance?
• What is the Format of Form MGT-8?
• What does of Form MGT-8 include?
• Whether Practising Company Secretary (PCS) is required to sign the Annual Return?
• Important points which a practising company secretary must take into consideration while signing Form MGT-8:

What is Form MGT-8 under the Companies Act, 2013? #

It is a Certificate issued by a practising company secretary in a specified format as prescribed under the Companies Act, 2013. Form MGT-8 can be considered as a mini secretarial audit.

Under Which Section Form MGT-8 is issued? #

It is issued under Section 92 (2) of the Companies Act, 2013 read with Rule 11(2) of the Companies (Management and Administration) Rules, 2014.

What are the criteria for the applicability of Form MGT-8? #

Form MGT-8 is applicable to 

• All Listed Companies
• Companies having paid-up share capital Rs. 10 crores or more or Turnover Rs. 50 crore or more

What is the purpose of Form MGT-8? #

Basically, Form MGT-8 is certification to Form MGT-7, therefore it is issued to certify whether a company has complied with the provisions of the Companies Act, rules and regulations during the financial year and annual return of the company states the facts correctly and accurately.

When MGT-8 is issued and what should be the date of signing? #

Form MGT-8 is a certification of details filled in Form MGT-7 (Annual Return) and certification can take place only after the Annual Accounts are finalised and adopted by the shareholders at the Annual General Meeting.

Therefore, one can interpret that the date of signing Form MGT-8 can be 

• Date after preparation of Form MGT-7, OR
• The date on which Form MGT-7 is certified, OR
• The date of Form MGT-7 itself.

The companies to whom MGT-8 is applicable should obtain the same before filing Form MGT-7 with Registrar of Companies, as it is a mandatory attachment to the form for such companies.

Also, as per the provisions of Section 92 of the Companies Act, 2013, the Annual Return in Form MGT-7 must be filed within 60 days from the date of the Annual General Meeting.

Is MGT-8 applicable to private limited companies? #

Certification in Form MGT-8 is mandatory for “the companies with paid-up share capital Rs. 10 crores of more OR Turnover Rs. 50 crore or more”. Therefore irrespective whether a company is a public company or a private company if they fulfil any one of the criteria i.e. paid-up capital or turnover for a particular financial year, then certification in Form MGT-8 will be applicable for that financial year.

Is MGT-8 applicable to Nidhi companies? #

As stated above, if any company, fulfils the criteria i.e. paid-up capital or turnover for a particular financial year, then Form MGT-8 will be applicable. Therefore, it applies to Nidhi Companies as well.

Rule 11(2) of Companies (Management and Administration) Rules, 2014, does not provide any special exemptions apart from paid-up capital and turnover threshold.

Is the generation of UDIN mandatory for Form MGT-8? #

With effect from October 01, 2019, for documents/certificates signed by Practising company secretary, UDIN (Unique Document Identification Number) must be generated either on the date of signing or 7 days before the date of signing of such document/certificate. A detailed list of documents for which UDIN generation is mandatory is provided under the guidelines issued by ICSI.

Therefore, for MGT-8, the practising company secretary must generate UDIN from UDIN portal of ICSI .

How to file Form MGT-8? #

Form MGT-8 is not an e-form and is not be filed separately unlike other e-forms. It is a physical form which must be typed, printed, physically signed and scanned. The signed scan copy of the form is attached to Form MGT-7 as an attachment, and further Form MGT-7 will be filed with ROC.

What are the penalties for wrong reporting of information in Form MGT-8 or non-compliance? #

As per Section 92(5) of the Companies Act, 2013, if a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, he shall be punishable with fine which shall not be less than Rs. 50,000 (fifty thousand rupees) but which may extend to Rs. 5 Lacs (five lakh rupees).

Further, Section 448 of the Companies Act, 2013 provides that if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,—

(a) which is false in any material particulars, knowing it to be false; or

(b) which omits any material fact, knowing it to be material,

He shall be liable for punishment under Section 447. 

Section 447 of the Act, imposes a severe punishment, i.e. imprisonment for a term which shall not be less than 6 months but may extend to 10 years and fine which shall not be less than the amount involved in fraud but which may extend to 3 times of the amount involved in the fraud.

PCS shall also be liable for various actions initiated by the Disciplinary Committee of ICSI for guilty of professional or other misconducts.

What is the Format of Form MGT-8? #

The format of Form MGT-8 is provided under Section 92(2) read with Rule 11(2) of the Companies (Management and Administration) Rules, 2014. Click here to view the format provided under the Act.

What does of Form MGT-8 include? #

It provides certification on below points:

That the Annual Return states the facts as at the close of the aforesaid financial year correctly and adequately. 

During the financial year under report, the company has complied with of the Act & Rules made thereunder in respect of: 

• Status of the company under the Act - Status means whether the company is listed, public limited or private limited company. 
• Whether the registers and records are maintained and entries in such registers are being timely made.
• Whether the company has filed various return, forms etc which were required to be filed with various authorities within the prescribed time.
• Whether the company has complied with the provisions of Calling/ holding/convening of Board Meetings, committee meetings and general meetings, and maintenance of records of the same 
• Closure of the register of members
• Compliances related to Section 185 of the Act - Loans and advances 
• Compliances under Section 188 of the Act - related party transactions
• Compliances related to Issue, allotment, transfer, transmission, buyback of shares, the redemption of preference shares, issue and redemption of debentures
• Right of dividend/bonus shares/right shares being kept in abeyance till the registration of transfer is completed
• Declaration and payment dividend as per Section 125 of the Act.
• The signing of audited financial statements and Boards’ Report
• constitution/ appointment/ re-appointments/ retirement/ filling up casual vacancies/ disclosures of the Directors, Key Managerial Personnel and the remuneration paid to them;
• appointment/reappointment or filling up the casual vacancy of statutory auditors
• approvals required to be taken from the from various authorities under the various provisions of the Act
• acceptance/ renewal/ repayment of deposits
• Borrowings from director/members/other institutions and matters pertaining to charge.
• loans and investments or guarantees given or providing of securities to other bodies corporate or persons falling under the provisions of section 186 of the Act
• Alteration of Memorandum or Articles of Association

Whether Practising Company Secretary (PCS) is required to sign the Annual Return? #

Under section 92(1) of the Act, the Annual Return is required to be signed both by a director and the Company Secretary, or where there is no Company Secretary, by a PCS.

Important points which a practising company secretary must take into consideration while signing Form MGT-8: #

• Form MGT-8 is a certification to Form MGT-7, therefore one must not overlook the details mentioned in the Form MGT-7.
• Prepare a detailed checklist for Form MGT-8. 
• To obtain the requisite information, invest a good amount of time in the audit of documents available with the company and on the public domain.
• Take the search on MCA - View public documents
• Make a detailed list of compliances applicable to the company, along with their due dates and verify whether the same is done within the prescribed time.
• If there are any qualifications/remarks related to any point in Form MGT-8, then specify such remarks below that point itself. Do not mention the same in any separate annexure.
• Check the provisions of applicable sections, secretarial standards.
• Check whether the forms and returns filed by the company are within due dates and whether any forms were filed late or missed to file.
• Original and updated copies of Memorandum and Articles of Association, Minutes of meetings, Registers and Records, Last audited financial statements, copies returns and forms filed with Registrar along with receipts, List of promoters, pending litigations and orders passed by various authorities and courts, documents related to charge filing and indebtedness of the company etc. should be checked.

The professionals may also get a declaration from the management via Management Representation Letter, in respect of the following matters:

• indebtedness of the company, 
• Shareholders and shareholding pattern of the company
• Transfer and transmission of shares
• Details of penalty/punishment on the company, director and officer.
• Details of compounding of offence in respect of Company, Director and Officer.
• Maintenance of registers, records, minutes by the company
• That no material event is suppressed from the PCS
• Any other matter as may be required.

While certifying the details as mentioned above one should always be careful. The data provided by the management and available in the public domain should be verified thoroughly. As penalties and punishments involved for false information or for intentional hiding of material facts are huge. Therefore due care and investment of the proper amount of time to verify the original documents is a must. It is the duty and responsibility of the professional to disclose true and correct information. They are also bound to inform the management regarding non-compliances happened if any and remedies to resolve the same so that the management can be well aware to avoid such non-compliances in future. One must understand the Companies Act, 2013 casts immense responsibility on the company, their management and professionals.

Thank you for visiting my blog. If this article has helped you in any way, then like, share or leave a comment .

Disclaimer : The information given on this site is based on my understanding and knowledge on the subject and does not constitute legal opinion or advice to the users. All information is provided in good faith, to create awareness of legal provisions, compliances and procedures and are solely for knowledge sharing purpose. however, we make no representation of any kind, express or implied, regarding the accuracy, adequacy and completeness of any information on site all the time. Hence you are advised to opt for professional advice before acting on the information provided herein.

03 Apr What are Management Representation Letters?

In the world of assurance engagements, a management representation letter is a formal document that represents management’s agreement with the financial statements that are being audited or reviewed. This letter is a critical part of the assurance engagement process and is required by the auditor or reviewer as evidence that management acknowledges and accepts responsibility for the financial statements.

A management representation letter is typically issued by senior management, such as the CEO or CFO, and is addressed to the CPA firm performing the audit or review. It contains a series of statements that confirm certain facts and assurances about the company’s financial information, including the completeness and accuracy of financial records, disclosures of relevant information, and adherence to accounting principles.

The letter serves several purposes, including:

• Confirming the accuracy of financial information : The management representation letter is used to confirm that the financial statements are accurate and complete. This helps provide assurance to stakeholders that the financial statements are reliable.
• Demonstrating management’s responsibility : By signing the letter, management acknowledges its responsibility for the accuracy and completeness of the financial statements. This helps to provide accountability and transparency to stakeholders.
• Providing evidence for auditors and reviewer s: The management representation letter provides evidence to the CPA firm that management has taken responsibility for the financial statements, which helps to support the audit opinion or review conclusion.
• Reducing the risk of misstatements : The letter helps to reduce the risk of misstatements by requiring management to review the financial statements and provide assurance that they are accurate and complete.

Overall, the management representation letter is a critical part of the assurance engagement process, as it helps to provide assurance that the financial statements are accurate and complete, and that management takes responsibility for them. Without this letter, CPA firms would not have the necessary evidence to support their opinions and conclusions, which could lead to a lack of confidence in the financial statements and potential legal and financial consequences for the company. In fact, CPA firms are not permitted to complete their engagement and issue an audit or review engagement report until management provides a signed management representation letter.

If you require an audit or review and would like to speak to someone about these processes, please contact us to set up a free consultation.

Jennifer Scott

Cpa, cga – senior manager.

Jennifer Scott, a Senior Manager at Clearline brings a wealth of expertise in Private Enterprise and Assurance, holding designations as a CPA and CGA. Jennifer’s focus at Clearline includes conducting reviews, compilations, and providing tax services tailored to owner-manager businesses and partnerships, with a keen interest in industries such as professionals, manufacturing, real estate, and services. Her commitment to exceptional client service is evident through her proactive approach to staying updated on evolving accounting standards and tax legislation, thereby making her clients’ lives easier Jennifer’s educational background includes a Bachelor of Commerce from UBC with a major in Accounting, followed by over 15 years of experience in public practice, specializing in private enterprise. She appreciates the supportive environment at Clearline and enjoys various activities outside of work, including travelling, cheering on her children in sports like soccer, baseball, and volleyball, indulging in long walks with her dog while listening to podcasts, spending quality time with loved ones, and exploring her passion for baking through experimenting with new recipes.

Charmaine Pirrie

Cpa, ca(sa) – senior manager.

Charmaine Pirrie, a Senior Manager at Clearline is a CPA and CA (SA) with a background in audit and review engagements. With experience from Grant Thornton and D&Co, she brings expertise in private company audits and values Clearline’s supportive environment and technical resources. Charmaine also finds fulfillment in delving into her clients’ businesses to provide tailored services, ensuring meticulous audit and review procedures. Outside of work, she enjoys spending time with family, going for walks, and swimming.

Deepeka Dhillon

Cpa – manager.

Deepeka Dhillon, a Manager at Clearline, holds a CPA designation with a focus in Private Enterprise and Tax. Her primary responsibilities include compliance, corporate restructuring, and, estate and succession planning. Deepeka’s passion lies in continuous learning, enabling her to provide tailored solutions to clients’ unique needs. With a CPA designation and completion of the CPA in-depth tax program, she brings a strong educational background to her role at Clearline. Deepeka values the countless opportunities at Clearline to expand her knowledge in the complex world of tax. Outside work, she enjoys spending time with her beloved Jack Russell Terrier, Opie.

Raj Momrath

Cpa, ca, senior tax manager.

Raj Momrath, a Senior Tax Manager at Clearline, is a CPA, CA specializing in Canadian Tax. With a focus on Canadian tax planning, corporate reorganizations, estate planning, and providing business advice, Raj caters to a diverse clientele, including small owner-manager companies, high-net-worth individuals and large privately held multinational firms. His passion lies in helping Canadian owner-manager businesses and their shareholders minimize their overall tax obligations while navigating disputes with the Canada Revenue Agency and ensuring compliance with the complex Canadian tax system. Raj’s professional journey includes prior experience in PwC’s tax group, where he obtained his Chartered Accountant designation and then some time at some mid-sized firms. Raj completed the CPA Canada InDepth Tax course in 2017 strengthening his knowledge of Canadian tax. At Clearline, Raj appreciates working alongside knowledgeable colleagues and enjoys spending quality time with his wife and two sons and attending and volunteering with their sports activities. In his leisure time, Raj indulges in barbequing, golfing, and spending time outdoors, finding relaxation and enjoyment in these pursuits.

Julia Wallis

Julia Wallis, a Senior Manager at Clearline, holds designations as a CPA, CGA, and also holds a BA. Working within the Private Enterprise Group, her primary focus revolves around assisting entrepreneurs in understanding their personal and business finances while ensuring compliance with tax reporting requirements. Julia finds fulfillment in learning about her clients’ businesses and providing financial insights to enhance their management effectiveness while optimizing tax strategies. With a diverse career spanning various companies and public practice roles, including as a controller, Julia’s progression has equipped her with invaluable skills and insights into different business operations. She chose Clearline for its respected partners and staff, aligned philosophy on client service, and flexibility to balance demanding tax filing periods with leisure time for travel and personal interests such as gardening, wine exploration, reading, and relaxation.

Annelie Vistica

Cpa, ca – principal.

Annelie Vistica, a Principal at Clearline, is a CPA and CA with a strong background in private enterprise and assurance. With a Bachelor of Accountancy from the University of Stellenbosch in South Africa and extensive experience in tax, Annelie brings expertise in business setup, growth planning, and estate transitioning. She is passionate about engaging with clients to support them through various business stages, from inception to succession planning. Annelie values the supportive environment at Clearline, where she appreciates colleagues’ assistance in tax and assurance. Outside work, she enjoys spending time with her family and dog, exploring nature, visiting family in the Okanagan, and travelling the world.

Bilal Kathrada

Cpa, ca, principal.

Bilal, a Principal at Clearline Chartered Professional Accountants, primarily focuses on income tax and succession planning for Canadian owner-managed businesses in various industries. Bilal received his Bachelor of Commerce degree from the University of Victoria and obtained his CA designation in 2005.

Prior to Clearline, he worked in the tax group of a large international accounting firm in Vancouver and a mid-sized accounting firm located in the Fraser Valley.

Outside of the office, he enjoys spending time with his wife and three children. He enjoys outdoor activities such as golf and spending time with his family and friends.

Danny Sandhu

Cpa, manager.

Bio coming soon.

Shehzel Saif

Cpa, tax manager.

As Clearline’s Tax Manager, Shehzel focuses on tax planning, corporate reorganizations and succession and estate planning. She’s passionate about continuous learning and staying up to date on tax legislation changes and helping clients with succession. In addition to her CPA designation, Shehzel also has a Bachelor of Business Administration and has completed the CPA In-Depth Taxation Program. Outside of work, she enjoys spending time with family and friends, traveling and trying out new recipes.

Ameeta Randhawa

As Clearline’s HR Manager, Ameeta supports our firm’s greatest resource—our staff. With a Bachelor of Business Administration in Human Resources and over 7 years of HR experience in various industries, she ensures all employees have a positive experience at Clearline. Ameeta’s focuses include recruitment, performance management, employee relations, program and policy development, and employee engagement. Outside of work, she enjoys traveling and spending time with friends and family.

CPA, CA, Senior Manager

Michael is a Senior Manager in Private Enterprise, carrying out reviews, compilations, and tax services for small- to medium-sized businesses. With a Bachelor of Commerce specializing in finance and a Diploma in Accounting, backed by over a decade of accounting experience, Michael is a trusted advisor who helps clients’ businesses succeed. Outside of the office, Michael enjoys spending time with family, trying out different restaurants in the city, and building and collecting mechanical keyboards.

CPA, CGA, Manager

Victor K. Yoshida

Victor was born and raised in Vancouver and obtained his Bachelor of Commerce from the University of British Columbia. He articled with Deloitte & Touche and received his CA designation in 1984. Victor was accepted to the firm’s tax group and went on to complete the Canadian Institute of Chartered Accountants In-Depth Tax course.

Victor specializes in Canadian income tax issues for professional and owner-managed businesses. He has extensive experience with business succession, estate planning, wealth preservation issues, corporate reorganizations, as well as mergers and acquisitions.

Victor was a member of the education committee of the Institute of Chartered Accountants of British Columbia and has held executive positions with various amateur sport organizations.

In his free time, Victor enjoys training for marathons, travelling, and spending time with his family.

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• Kandivali West Mumbai 400067, India
• 02246022657
• [email protected]

Download Format of Management Representation Letter for Company Audit

Management representation is a letter issued by a client to the auditor in writing as part of audit evidences. It serves to document management’s representations during the audit, reducing misunderstandings of management’s responsibilities for the financial statements.

Below is the format of Managmenet representation letter:

On the letter head of the company

Name and address of auditors

Sub:   Representation for the purpose of audit for the financial year 2019-20 (Assessment year 2020-21 )

This representation letter is provided in connection with your audit of the financial statements of «Name of the company» for the year ended 31.03.2020 for the purpose of expressing an opinion as to whether the financial statements give a true and fair view of the financial position of «Name of the company» , as on 31.03 .2020 and of the results of operations for the year then ended. We acknowledge our responsibility for preparation of financial statements in accordance with the requirements of the Companies Act, 2013 and recognized accounting policies and practices, including the Accounting Standards issued by the Institute of Chartered Accountants of India.

We confirm, to the best of our knowledge and belief, the following representations;

Accounting Policies

• The accounting policies which are material or critical in determining the results of operations for the year or financial position is set out in the financial statements are consistent with those adopted in the financial statements for the previous year. The financial statements are prepared on accrual basis except discounts claims and rebates, which cannot be determined with certainty in the respective accounting year.
• Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable.
• All events subsequent to the date of the financial statements and for which applicable accounting standards in India require adjustment or disclosure have been adjusted or disclosed.
• The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole.
• We have fulfilled our responsibilities, as set out in the terms of the audit engagement, for the preparation of the financial statements in accordance with Financial Reporting Standards; in particular, the financial statements give a true and fair view in accordance with the applicable accounting standards in India.

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6. The company has satisfactory title to all assets.

The company has satisfactory title to all assets and is subject to first charge to _______________ for securing the working capital loan/ Term loan.

Fixed Assets

7. The net book values at which fixed assets are stated in the balance sheet are arrived at;

• After taking into account all capital expenditure on additions thereto, but no expenditure being chargeable to revenue.
• After eliminating the cost and accumulated depreciation relating to items sold, discarded, demolished or destroyed.
• After providing adequate depreciation on fixed assets during the period.

Capital Commitments

8. At the balance sheet date, there were no outstanding commitments for capital expenditure.

Investments

9. The company does not have any investments.

10. All the investments shown in the balance sheet are “Long Term Investment’.

11. Long-term quoted investments are valued cost less provision for permanent diminution in their value.

12. Long term unquoted investments are valued at cost.

13. All the investments belong to the entity and they do not include any investments held on behalf of any other persons.

14. The entity has clear title to all of its investments. There are no charges against the investments of the entity except those appearing in the records of the entity.

Inventories

15. Inventories at the year-end consisted of the following:

16. All quantities were determined by actual physical count or weight that was taken under our supervision and in accordance with written instructions, on 31.3.2020.

17. All goods included in the inventory are the property of the entity, and none of the goods are held as consignee for others or as bailee.

18. All inventories owned by the entity, wherever located, have been recorded.

19. Inventories do not include goods sold to customers for which delivery is yet to be made.

20. Inventories have been valued at cost or net-realizable value, whichever is less.

21. In our opinion, there is no excess, slow moving, damaged or obsolete inventories, hence no provision is required to be made.

22. No item of inventories has a net realizable value in the ordinary course of business, which is less than the amount at which it is included in inventories.

Debtors, Loans and Advances

23. The following items appearing in the books as at 31.3.«YearClos» are considered good and fully recoverable.

Liabilities

24. We have recorded all known liabilities in the financial statements except retirement benefits, discounts claims and rebates.

25. We have disclosed in Notes on Accounts all guarantees that, if any we have given to third parties.

26. There are no Contingent Liabilities as on 31.3.2020.

Provisions for Claims and Losses

27. There are no known losses and claims of material amounts for which provision is required to be made.

28. There have been no events subsequent to the balance sheet date which require adjustment of or disclosure in, the financial statements or notes thereto.

Statement of Profit and Loss

29. Except as disclosed in the financial statements, the results for the year were not materially affected by;

• Transactions of a nature not usually undertaken by the company.
• Circumstances of an exceptional or non-recurring nature.
• Charges or credits relating to prior years
• Changes in accounting policies

30. The following have been properly recorded and, when appropriate, adequately disclosed in the financial statements;

• Loss arising from sale and purchase commitments.
• Agreements and options to buy back assets previously sold.
• Assets pledged as collateral.

31. All transactions have been recorded in the accounting records and are reflected in the financial statements.

32. There have been no irregularities involving management or employees who have a significant role in the system of internal control that could have a material effect on the financial statements.

33. The financial statements are free of material misstatements, including omissions.

34. The Company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial statements in the event of non-compliance.

35. We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities reflected in the financial statements.

36. The allocation between capital and revenue has been correctly done and that no items of capital nature have been debited to Statement of Profit & Loss and vice versa.

37. The Cash balance as on 31.3.2020 has been physically verified by the management at Rs. ________.

38. The details of disputed dues in case of GST/VAT/sales tax/ income tax/ customer tax/ excise duty/ cess/PF/ESI which have not been deposited on account of dispute is as under:

39. The company has not defaulted in repayment of dues to financial institution or bank.

40. The company has not given any guarantee for loans taken by others from bank or financial institutions.

41. No personal expenses have been charged to revenue accounts

42. We have provided you with:

• Access to all information of which we are aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;
• Additional information that you have requested from us for the purpose of the audit; and
• Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence.
• We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud.

43. We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the entity and involves:

• Management;
• Employees who have significant roles in internal control; or
• Others where the fraud could have a material effect on the financial statements.

45. Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of applicable accounting standards in India. We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware.

46. The payments covered under section 40A (3) were made by account payee cheques drawn on a bank or account payee bank draft.

47. All the loans, deposits or specified sum exceeding the limit specified in section 269SS/T are accepted or repaid through an account payee cheque or an account payee bank draft.

48. The information regarding applicability of MSMED Act 2006 to the various supplier/parties has not been received from the suppliers. Hence information as required vide clause 22 of chapter V of MSMED Act 2006 is not being given.

49. The loans taken from directors of the company or their relatives are out of their own funds and not any borrowed funds in pursuance of relevant provisions of Companies Act, 2013. Necessary declarations in this behalf have been obtained by the company from them.

By order of the Board

For «Name of the company»

«Director 1 name» Director «Director 2 name» Director

DIN : DIN :

Dated:- «Balancesheet Date»

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Management Representation Letters in Governance Audit

A Management Representation Letter, referred to herein as the letter, is a document signed by senior company management and submitted to the company’s external auditors. This letter serves as an affirmation of the accuracy of the financial statements subjected to the auditor’s scrutiny. The significance of this practice is underscored by its incorporation into the International Standards on Auditing (ISA 580), designating the letter and its written representations as audit evidence. This inclusion in professional standards emphasizes the need for Management Representation Letters in audit processes, as audit evidence forms the foundation for the auditor’s opinion.

This governance practice holds a pivotal role in ensuring the quality, integrity, ethical grounding, and diligence of financial statements and management. Its importance extends across various dimensions:

• Drawing inspiration from Saul Alinsky’s insight that controlling language controls the masses, the governance framework becomes a critical tool. Notably, the Enron Inc. scandal serves as a cautionary tale, where falsified financial statements led to a catastrophic decline in share value. Robust governance, including the Management Representation Letter, mitigates such risks.
• In specific jurisdictions, such as the United States under the Sarbanes Oxley Act, the Management Representation Letter is a statutory requirement. This mandates companies to have their executives sign the letter, ensuring compliance with legal obligations.
• Recognizing the absence of jurisprudence in some jurisdictions, professional institutes often incorporate the practice into their codes. Additionally, adherence to international standards such as the International Financial Reporting System (IFRS) and ISA is crucial. For instance, the Institute of Certified Public Accountants (ICPAC) recognizes the importance of ISA.
• The letter serves as a safeguard against managerial denial of wrongdoing or negligence, particularly in cases of incompetent oversight. Reference to Kenneth Lay’s denial in the Enron scandal highlights the necessity of signed letters to counter such potential denials.
• Acknowledging that auditors depend on correct financial statements, the Management Representation Letter reduces management’s influence, strengthening the auditor’s oversight powers.
• The letter establishes accountability for senior managers responsible for the business’s well-being. Signing the letter signifies their individual responsibility for the financial statement’s integrity, completeness, and potential losses resulting from falsified records.
• As pre-audit custodians of financial reports, management holds significant influence over their integrity. The letter commits them to refrain from tampering with the contents or preparation of reports, preventing potential manipulations.
• Providing assurance to auditors, the Management Representation Letter instills confidence in the accuracy of the financial position reviewed. This credibility promotes responsible management practices and underscores the significance of the audit exercise.

The Management Representation Letter transcends being a mere accessory in the audit process; it is a cornerstone of good corporate governance. This letter safeguards against shareholder deception, assuring stakeholders and the public of transparent and above-board operations within a company. It stands as the final safeguard against misinformation, reinforcing the integrity of financial reporting.

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Appendix II: Illustrative Management Representation Letter ​

The following illustrative letter includes written representations that are required by this Implementation Guide, SA 580, “Written Representations” and other Standards on Auditing as applicable. It is assumed in this illustration that the relevant accounting software meets the essential characteristics as specified by the Account Rules; and that there are no exceptions to the requested written representations. If there are exceptions, the representations would need to be modified to reflect the exceptions.

(Entity Letterhead)

(To Auditor) (Date)

This representation letter is provided in conjunction with your audit of the standalone/ consolidated financial statements of the Company for the year ended March 31, 20XX, for the purpose of reporting as to whether the accounting software used by the Company for maintaining its books of account, has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

We confirm that to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves:

We are responsible for establishing and maintaining adequate and effective controls based on [mention control criteria] in respect of use of accounting software that entails the requisite features as specified by Account Rules.

We have performed an evaluation and made an assessment of the adequacy and effectiveness of the company's accounting software in term of recording audit trail of each and every transaction.

We have not used the procedures performed by you during the audit as part of the basis for our assessment of the effectiveness of audit trails of accounting software.

Based on the assessment carried out by us and the evaluation of the results of the assessment, we conclude that the Company uses accounting software for maintaining its books of account which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled and the audit trail been preserved by the company as per the statutory requirements for record retention except for the below mentioned exceptions noted during our assessment and evaluation.

a. (brief of deficiencies)

b. (brief of the impact)

We have disclosed to you all deficiencies identified as part of management's evaluation, including separately disclosing to you all such deficiencies that we believe to be significant deficiencies or would lead to material weaknesses in internal financial controls.

There were no instances of fraud resulting in a material misstatement to the company's financial statements and any other fraud that does not result in a material misstatement to the company's financial statements but involves senior management or management or other employees who have a significant role in the company's internal financial controls. (or) The following instances of fraud that resulted in material misstatement of financial statements in earlier years and frauds involving senior management or management or other employees who have a significant role in the company's internal financial controls were noted: (list instances and amounts involved).

The deficiencies identified in the previous engagement and communicated to the Company and those charged with governance have been remediated, except for the following: (…………) (This issue is not applicable in the first year)

There have been no communications from regulatory agencies concerning non-compliance with or deficiencies in accounting software.

We have provided you with:

All information, such as records (including SOC report) and documentation, and other matters that are relevant to your assessment of accounting software;

Additional information that you have requested from us;

Unrestricted access to those within the entity.

Audit reports of the component auditors, including their report under Section 143(3)(i) of the Act for the following subsidiary companies, jointly controlled companies and associate companies to whom reporting under Section 143(3)(i) is applicable.

There are no other subsidiary companies, jointly controlled companies and associate companies of the company to whom reporting under Section 143(3)(i) is applicable and whose auditors have not issued their report under Section 143(3)(i) of the Act.

In the case of the following subsidiary companies, jointly controlled companies and associate companies of the company to whom reporting under Section 143(3)(i) is applicable, the respective component’s year end is other than that of the Company:

With respect to these components, we have provided to you the audit reports of the component auditors, including their report under Section 143(3)(i) of the Act for their respective financial year under the Act that has been considered in the preparation of the consolidated financial statements of the Company.

There are no changes in the accounting software from March 31, 20XX [balance sheet date] till the date of this representation letter. (or) The following changes have been made to the accounting software since March 31, 20XX [balance sheet date] and the date of this letter: (list changes and reason for the change).

These changes include corrective actions taken by us with regard to significant deficiencies with respect to the following: (list significant deficiencies).

The following changes to accounting software have been proposed as on date of this representation letter but have not yet been implemented: (list proposed changes and reason for the proposed change).

The changes to the accounting software since March 31, 20XX [balance sheet date] and the proposed changes that are under consideration by the Company do not impact our assessment, evaluation and conclusion of the accounting software as at March 31, 20XX [balance sheet date]

[Any other matters that the auditor may consider appropriate.]

For and on behalf of ABC Company Limited

__ (Signature) Name and Designation