What it is
When conditions and events raise substantial doubt, or management has evaluated them and found none, the auditor needs written confirmation of the evaluation, the plans and the facts behind them. This addendum supplements the main representation letter and is read with it.
Choose the paragraph that matches the conclusion in each section. The addendum covers management’s evaluation period and inputs, plans and their probability, supporting forecasts, covenant status, creditor correspondence, financial support commitments and future intent.
When to use it
- When management’s evaluation identifies conditions or events that raise substantial doubt.
- When debt covenants were violated or waived and liquidity is tight.
- When the entity depends on owner or parent support to continue operations.
What’s inside
- Management’s evaluation over the one-year period with a choice of conclusions
- Plans, ability to carry them out, forecast assumptions and support commitments
- Covenant compliance, waiver and creditor correspondence representations
- Future intent and disclosure completeness representations
- Signature block
Standard cited
This template follows AU-C 580 / ASC 205-40. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 580 explained.
Questions
What evaluation period applies?
One year after the date the financial statements are issued, or available to be issued where that applies. ASC 205-40 sets the period and the two-step evaluation.
How does management’s plan alleviate doubt?
Only when it is probable that the plan will be effectively implemented and, when implemented, mitigates the conditions within the period. The addendum has management confirm both.
Is this addendum needed with no doubt?
Use option C in the evaluation section and keep the other sections that apply. It documents that management evaluated the matter.
Does it replace the going concern memo?
No. It confirms what the memo and forecasts show.
Related templates
- Management Representation Letter (AU-C 580)
- Going Concern Evaluation Memo (AU-C 570 / ASC 205-40)
- Disclosure Checklist: Going Concern (ASC 205-40)
- Debt Classification and Covenant Memo (ASC 470)
Last updated 11/05/2026. All free templates.