The compilation standards do not require practitioners to obtain a management representation letter, but this does not mean that it’s not a prudent thing to do. Obtaining a representation letter helps to ensure your client understands the services that you have provided, the limitations on the work you have completed, and that they are ultimately responsible for their financial statements. The representation should reaffirm your client’s understanding of all significant terms in the engagement letter.
Illustrative Guidance – Management Representations
Listed here are some basic representations you could consider using in a compilation management representation letter:
- Management has reviewed and approved the financial statements as well as all journal entries;
- The practitioner has explained that the financial statements might not be suitable for use by other persons;
- Management has provided the practitioner with all of the accounting records and financial information necessary to compile the financial statements; and
Management is not aware of any matter that has occurred or is pending that would cause the financial statements to be false or misleading.
Practice Management Tip
Consider tailoring specific representations for the engagement to mitigate identified risks. Two examples of representation points that might apply to most compilation engagements are:
- Management confirms that it has not included any personal or other inappropriate expenditure in the company’s financial statements; and
- Management has disclosed all foreign assets, investments, and transactions to you.
Be sure to get the appropriately authorized individual to sign the representation letter before you issue the Notice to Reader.
Rate this Entry
Current rating: 8 yes votes, 1 no votes