Representation letter additional sample wording
The specific written representations obtained will depend on the circumstances of the engagement and the nature and basis of presentation of the financial statements. The following are examples of conditions (and the resultant representation) of which the accountant may become aware during the review engagement (AAG CRV Chapter 1 - Review of Financial Statements 1.194):
General
| Condition | Illustrative examples |
| The effect of a new accounting principle is not known. | We have not completed the process of evaluating the impact that will result from adopting FASB Accounting Standards Update (ASU) No. [20X1-XX], as discussed in note X. The company is therefore unable to disclose the impact that adopting FASB ASU No. [20X1-XX] will have on its financial position and the results of operations when such statement is adopted. |
| Justification exists for a change in accounting principles | We believe that [describe the newly adopted accounting principle] is preferable to [describe the former accounting principle] because [describe management’s justification for the change in accounting principles]. |
| The accountant believes that substantial doubt exists about the entity’s ability to continue as a going concern for a reasonable period of time. | We have appropriately disclosed a description of management’s plans that are intended to mitigate the adverse effects of conditions or events that indicate there is substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time and the probability that those plans will be implemented. Note X to the financial statements discloses all of the matters of which we are aware that are relevant to the company’s ability to continue as a going concern, including significant conditions and events, and management’s plans. |
| The possibility exists that the value of specific significant long-lived assets or certain identifiable intangibles may be impaired. | We have reviewed long-lived assets and certain identifiable intangibles to be held and used for impairment whenever events or changes in circumstances have indicated that the carrying amount of its assets might not be recoverable and have appropriately recorded the adjustment. |
| The entity has a variable interest in another entity. | Variable interest entities (VIEs) and potential VIEs and transactions with VIEs and potential VIEs have been properly recorded and disclosed in the financial statements in accordance with accounting principles generally accepted in the United States of America. We have considered both implicit and explicit variable interests in (a) determining whether potential VIEs should be considered VIEs, (b) calculating expected losses and residual returns, and (c) determining which party, if any, is the primary beneficiary. We have provided you with lists of all identified variable interests in (a) VIEs, (b) potential VIEs that we considered but judged not to be VIEs, and (c) entities that were afforded the scope exceptions of FASB Accounting Standards Codification(ASC) 810, Consolidation. We have advised you of all transactions with identified VIEs, potential VIEs, or entities afforded the scope exceptions of FASB ASC 810. We have made available all relevant information about financial interests and contractual arrangements with related parties, de facto agents, and other entities, including but not limited to, their governing documents, equity and debt instruments, contracts, leases, guarantee arrangements, and other financial contracts and arrangements. The information we provided about financial interests and contractual arrangements with related parties, de facto agents, and other entities includes information about all transactions, unwritten understandings, agreement modifications, and written and oral side agreements. Our computations of expected losses and expected residual returns of entities that are VIEs and potential VIEs are based on the best information available and include all reasonably possible outcomes. Regarding entities in which the company has variable interests (implicit and explicit), we have provided all information about events and changes in circumstances that could potentially cause reconsideration about whether the entities are VIEs or whether the company is the primary beneficiary or has a significant variable interest in the entity. We have made and continue to make exhaustive efforts to obtain information about entities in which the company has an implicit or explicit interest, but that were excluded from complete analysis under FASB ASC 810 due to lack of essential information to determine one or more of the following:
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| The work of a specialist has been used by the entity. | We agree with the findings of specialists in evaluating the [describe assertion] and have adequately considered the qualifications of the specialist in determining the amounts and disclosures used in the financial statements and underlying accounting records. We did not give or cause any instructions to be given to specialists with respect to the values or amounts derived in an attempt to bias their work, and we are not otherwise aware of any matters that have had an impact on the independence or objectivity of the specialists. |
| Supplementary information is required. | We are responsible for the fair presentation of the additional information [supplemental schedules] accompanying the basic [consolidated] financial statements that is [are] presented for the purpose of additional analysis of the basic [consolidated] financial statements. |
| Management has used accounting conventions. | We have disclosed to you the accounting conventions used when preparing our financial statements. The effect of applying these accounting conventions and the use of such applications is immaterial to the financial statements. |
| Financial statement misstatements in the current period relate to the prior period[s]. | We believe the effects of the uncorrected financial statement misstatements detected in the current [specify period; for example, year] that relate to the prior [specify period; for example, year] presented, when combined with those misstatements aggregated by you during the prior-[specify period; for example, year] review engagement and pertaining to the prior [specify period; for example, year] presented, are immaterial, both individually and in the aggregate, to the financial statements for the specify period(s); for example, the year ended [date] taken as a whole. |
Assets
| Condition | Illustrative examples |
| Cash | |
| Disclosure is required of compensating balances or other arrangements involving restrictions on cash balances, lines of credit, or similar arrangements. | Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances, lines of credit, or similar arrangements have been properly disclosed. |
| Financial instruments | |
| Management intends to and has the ability to hold to maturity debt securities classified as held to maturity. | Debt securities that have been classified as held to maturity have been so classified due to the company’s intent to hold such securities to maturity and the company’s ability to do so. All other debt securities have been classified as available for sale or trading. |
| Management considers the decline in value of debt or equity securities to be temporary. | The methods and significant assumptions used to determine fair values of financial instruments are as follows: [describe methods and significant assumptions used to determine fair values of financial instruments]. The methods and significant assumptions used result in a measure of fair value appropriate for financial statement measurement and disclosure purposes. |
| Financial instruments with off-balance-sheet risk and financial instruments with concentrations of credit risk exist. | The following information about financial instruments with off-balance-sheet risk and financial instruments with concentrations of credit risk has been properly disclosed in the financial statements:
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| Receivables | |
| Receivables have been recorded in the financial statements. | Receivables recorded in the financial statements represent valid claims against debtors for sales or other charges arising on or before the balance sheet date and have been appropriately reduced to their estimated net realizable value. |
| Inventories | |
| Excess or obsolete inventories exist. | Provision has been made to reduce excess or obsolete inventories to their estimated net realizable value. |
| Investments | |
| Unusual considerations are involved in determining the application of equity accounting. | [For investments in common stock that are either nonmarketable or of which the entity has a 20 percent or greater ownership interest, select the appropriate representation from the following]:
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| Deferred charges | |
| Material expenditures have been deferred. | We believe that all material expenditures that have been deferred to future periods will be recoverable. |
Liabilities
| Condition | Illustrative examples |
| Debt | |
| Short-term debt could be refinanced on a long-term basis and management intends to do so. | The company has excluded short-term obligations totaling $[amount] from current liabilities because it intends to refinance the obligations on a long-term basis. [Complete with appropriate wording detailing how amounts will be refinanced as follows]: The company has issued a long-term obligation [debt security] after the date of the balance sheet but prior to the issuance of the financial statements for the purpose of refinancing the short term obligations on a long term basis. The company has the ability to consummate the refinancing, by using the financing agreement referred to in note [X] to the financial statements. |
| Tax-exempt bonds have been issued. | Tax exempt bonds issued have retained their tax-exempt status. |
| Taxes | |
| Management intends to reinvest undistributed earnings of a foreign subsidiary. | We intend to reinvest the undistributed earnings of [name of foreign subsidiary]. |
| Special tax status exists under Subchapter S. | The Company has claimed a special tax status under Subchapter S of the Internal Revenue Code. The Company has met all of the eligibility requirements, and the election remained in effect through [the end of the review period]. |
| A deferred tax asset exists at the balance sheet date. | The valuation allowance has been determined pursuant to the provisions of FASB ASC 740, including the company’s estimation of future taxable income, if necessary, and is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized. [Complete with appropriate wording detailing how the entity determined the valuation allowance against the deferred tax asset]. or A valuation allowance against deferred tax assets at the balance sheet date is not considered necessary because it is more likely than not that the deferred tax asset will be fully realized. |
| The entity does not have income tax contingencies. | We do not have (a) asserted and unsettled income tax contingencies or (b) unasserted income tax contingencies caused by uncertain tax positions taken in our income tax returns filed with the Internal Revenue Service and state, [and] local [, and foreign] tax authorities that are probable of assertion by such tax authorities under the provisions of FASB ASC 450, contingencies. Furthermore, we have not received either written or oral tax opinions that are contrary to our assessment. |
| Contingencies | |
| Estimates and disclosures have been made of environmental remediation liabilities and related loss contingencies. | Provision has been made for any material loss that is probable from environmental remediation liabilities associated with [name of site]. We believe that such estimate is reasonable based on available information and that the liabilities and related loss contingencies and the expected outcome of uncertainties have been adequately described in the company’s financial statements. |
| Agreements may exist to repurchase assets previously sold. | Agreements to repurchase assets previously sold have been properly disclosed. |
| Pension and post-retirement benefits | |
| An actuary has been used to measure pension liabilities and costs. | We believe that the actuarial assumptions and methods used to measure pension liabilities and costs for financial accounting purposes are appropriate in the circumstances. |
| Involvement with a multi-employer plan exists. | We are unable to determine the possibility of a withdrawal liability in a multi-employer benefit plan. or We have determined that there is the possibility of a withdrawal liability in a multi-employer plan in the amount of $[XX]. We do not intend to compensate for the elimination of post-retirement benefits by granting an increase in pension benefits. or We plan to compensate for the elimination of post-retirement benefits by granting an increase in pension benefits in the amount of $[XX]. |
| Employee layoffs that would otherwise lead to a curtailment of a benefit plan are intended to be temporary. | Current employee layoffs are intended to be temporary. |
| Management intends to either continue to make or not make frequent amendments to its pension or other post-retirement benefit plans, which may affect the amortization period of prior service cost, or has expressed a substantive commitment to increase benefit obligations. | We plan to continue to make frequent amendments to pension or other post-retirement benefit plans, which may affect the amortization period of prior service cost. or We do not plan to make frequent amendments to pension or other post-retirement benefit plans. |
Equity
| Condition | Illustrative examples |
| Capital stock repurchase options or agreements or capital stock reserved for options, warrants, conversions, or other requirements exist. | Capital stock repurchase options or agreements or capital stock reserved for options, warrants, conversions, or other requirements have been properly disclosed. |
Income statement
| Condition | Illustrative examples |
| There may be a loss from sales commitments. | Provisions have been made for losses to be sustained in the fulfillment of or from inability to fulfill any sales commitments. |
| Nature of the product or industry indicates the possibility of undisclosed sales terms. | We have fully disclosed to you all sales terms, including all rights of return or price adjustments and all warranty provisions. |
