Letter of representation: management's statements at the end of an audit

Quick answer. The letter of representation is a letter by which the entity's management confirms in writing, to the statutory auditor, the statements it made during the audit. Obtained at the end of the engagement, shortly before the date of the report, it constitutes audit evidence that complements the rest, without substituting for it. It notably recalls that management is responsible for the accounts and that it provided the auditor with all the necessary information.

In a statutory audit engagement, the letter of representation is an end-of-engagement procedure often misunderstood by directors, who sometimes sign it without gauging its scope. It formalises management's statements and commits its responsibility. Here is what it is, its content and its limits.

The letter of representation puts management's statements in writing.

During the audit, the statutory auditor obtains many statements from management, on the accounts, the events, the estimates. The letter of representation is the document by which management confirms these statements in writing, at the end of the engagement. It is dated as close as possible to the date of the auditor's report on the accounts, as it must cover the whole audited period up to the signature.

It is an end-of-audit procedure, provided for by the professional standards applicable to the statutory auditor. It is not an incidental formality: it commits management on its statements.

The letter of representation covers several key confirmations.

In it, management confirms that it assumes responsibility for preparing the accounts and their true and fair view. It confirms having made available to the auditor all the relevant information and documents, with no withholding. It addresses sensitive points: completeness of the recorded operations, treatment of disputes and risks, events after the close, assumptions used for estimates. The content adapts to the entity's specifics and the risk areas identified during the audit.

These confirmations dovetail with the rigour expected throughout the year, from the accounting close to the inventory of stocks.

The letter of representation is useful, but it has a well-defined scope.

It constitutes audit evidence, but it complements the other evidence collected by the auditor, it does not substitute for it. A statement by management does not dispense the auditor from their own checks: if sufficient evidence cannot be obtained otherwise, the letter does not replace it. Moreover, a letter of representation contradicted by other evidence alerts the auditor and may affect their opinion. Finally, management's refusal to provide this letter is a serious signal, liable to have consequences on the engagement.

The letter of representation is not a mere audit-close formality: it commits management on the completeness and sincerity of its statements. For the director, signing it assumes that they have actually communicated all the useful information to the auditor.

Our view is that this letter must be taken seriously on both sides. For the auditor, it is one piece of evidence among others, never a substitute for their procedures. For management, it formalises a real responsibility. Anticipating its content, by ensuring nothing has been omitted in the exchanges with the auditor, avoids difficulties at the end of the engagement. A letter signed lightly, or contradicted by the facts, can weaken the relationship and the audit opinion.

A director was about to sign the letter of representation without having read it carefully, considering it a formality. The re-reading highlighted that it notably confirmed the completeness of the disclosed disputes. Yet a recent dispute had not been reported to the auditor. The information was transmitted before the signature, allowing the auditor to take it into account. The letter thus played its role: not to cover an omission, but to remind management of the extent of its statements.