The representation letter in a review engagement

• List the specific written representations required by AR-C 90
• Identify who should sign and how the letter is dated
• Tailor additional representations under AR-C 90
• Respond when representations are refused or unreliable under AR-C 90

Representations are evidence

AR-C 90 states that written representations are necessary information in a review and, like responses to inquiries, are review evidence. The application material adds that asking for written rather than oral representations prompts management to consider the matters more carefully. Because they are required evidence, the review report cannot be dated before the representations.

Who signs and how it is dated

AR-C 90 requires the request to go to members of management with appropriate responsibility for the statements and knowledge of the matters. The application material says that is often the CEO and CFO or equivalents. In an owner-managed business it may be the owner alone. The application material lets you accept "to the best of our knowledge and belief" wording when the signers have appropriate responsibility.

AR-C 90 requires the representations to be dated as of the review report date and to cover all statements presented and all periods covered by the review. AR-C 90 requires the form to be a letter addressed to the accountant. If management cannot sign on the report date, do not release the report. Hold it until you hold the signed letter, and date both as of the same day.

The required representations

AR-C 90 lists what management must state:

1. it has fulfilled its responsibility for preparing and fairly presenting the statements under the framework
2. it acknowledges responsibility for internal control, including preventing and detecting fraud
3. all transactions are recorded and reflected
4. it provided all relevant information and access agreed in the engagement terms
5. it responded fully and truthfully to all inquiries
6. it disclosed the identity of related parties and all related party relationships and transactions it knows of, and accounted for and disclosed them properly
7. it disclosed significant facts about fraud or suspected fraud involving management, employees with significant internal control roles, or others where the fraud could be material
8. it disclosed allegations of fraud from employees, former employees, regulators or others
9. it disclosed all known actual or possible noncompliance with laws and regulations
10. it disclosed all information relevant to the going concern assumption
11. it properly accounted for subsequent events requiring adjustment or disclosure
12. whether it believes uncorrected misstatements are immaterial, with a summary included or attached
13. it disclosed all known actual or possible litigation and claims and accounted for them properly
14. whether it believes significant assumptions used in estimates are reasonable

The application material notes that management may say it does not agree certain items are misstatements; it may add wording to that effect.

Tailoring

AR-C 90 requires additional representations when you determine they are needed to support other evidence. The application material mentions matters specific to the business or industry. Typical tailored items: debt covenant compliance, a specific related party sale, inventory obsolescence assumptions, tax positions, and the completeness of a contract list. The review representation letter template has optional paragraphs.

When management will not sign

AR-C 90 applies when management does not provide the required representations, or you doubt management's integrity enough that the representations are not reliable. You discuss the matter with management and those charged with governance. If management still will not provide them, or your doubts remain, you should withdraw. There is no qualified conclusion for a missing representation letter.

File mistakes

• Letter dated earlier than the report.
• Letter covering only the current year when comparative periods are reviewed.
• Uncorrected misstatement summary missing or not matching the file.
• Audit-style representations about internal control effectiveness copied in, which management cannot support.

The representation letter guide and the dating guide give more examples.

Dating and tailoring at Pinecrest Property Services, LLC