The moment your audit team walks through the door you’re probably already thinking about how you can quickly give them the information they need so they can get in, get out and leave you alone to go back to your regularly scheduled work week. So, to speed up the process, you proactively pull supporting documentation and make yourself available to answer any questions that may arise. Finally, after a few days, your auditors say they’ve seen enough, pack up their gear and head out the door. Now all that’s left to do is wait.
Don’t put your guard down just yet. After bending over backward to ensure that your audit team’s requests were met, you will learn that there is one last thing to sign before the final report can change hands – a representation letter.
It’s tempting to blindly sign this document. After all, you’ve already been through the hard part. So it seems pretty silly to let a single signature stand between you and the final report – your sole reason for enduring the audit process in the first place. But before you do, hold it right there …
Never sign anything you don’t completely understand.
Here’s The Deal …
The Auditing Standards Board, in its overall audit guidance standards, calls for auditors to obtain specific written audit representations. So, no, your audit team isn’t just making you sign a random document because they feel like it or because they are trying to trip you up. It is part of required audit procedures, but you should always know – and understand – what you’re signing.
Read Also: Preparation Is Key When It Comes To An Audit
Did You Know:
By signing this letter, you indicating that you’ve been fully forthcoming about all in-year activity, all subsequent to date activity and any future planned activity.
While this may be a major “well duh!” moment for you, it bears repeating that if there is something you are aware of that didn’t come up during conversations with your auditors, the time to discuss it is now – before you put pen to paper. For example, if a decision to sell or terminate the entity has occurred or if a compliance failure has resulted in major fines, the audit team will need to be made aware of these facts for their full review of the situation.
By signing this letter, you are accepting your responsibility for the financial statements?
Even if the auditors have assisted in, or completed, the preparation of the financial statements, management is responsible to make sure all financial statements (including disclosures) are a fair presentation of the current position and activity of the entity. If you even have a twinge of uncertainty, it may be beneficial to discuss this representation with your audit team, who can assist you with understanding the financial statements as a whole.
By signing this letter, you are representing that you have evaluated any uncorrected financial statement misstatements compiled by the audit team?
The audit team has provided a list of these identified misstatements and, on their end, do not believe posting them would impact the reader of the financial statements. But, it’s ultimately your responsibility to make the final determination. So, if you don’t fully understand how these misstatements were identified and how they could impact the financial statements on an individual and aggregate basis, you will want to request further explanation from your audit team.
These are only a few of the representations you will come across within the letter, but there will almost certainly be many more. At this point, you may be thinking it’s best if you don’t sign anything at all. But because the Accounting Standards Board specifically identifies that management’s refusal to furnish these required representations constitutes a limitation on the scope of the audit sufficient enough for the auditor to disclaim an opinion or even withdraw from the engagement entirely – you don’t want to do that either.
Ultimately, your best option is to discuss the letter with your audit team and ask questions on anything you do not understand. Then you can be fully confident when the time comes to complete this one last request.
Email Rea & Associates to learn more about representation letters or to learn more about what you can expect when you working with Rea’s retirement plan audit team.
By Kimberly Veal (Lima Office)